Coast Guard Deepwater Acquisition
Programs: Background, Oversight Issues, and
Options for Congress

Ronald O'Rourke
Specialist in Naval Affairs
September 23, 2009
Congressional Research Service
7-5700
www.crs.gov
RL33753
CRS Report for Congress
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repared for Members and Committees of Congress

Coast Guard Deepwater Acquisition Programs

Summary
The term Deepwater refers to a collection of more than a dozen Coast Guard acquisition
programs for replacing and modernizing the service’s aging fleet of deepwater-capable ships and
aircraft. Until April 2007, the Coast Guard pursued these programs as a single, integrated
acquisition program that was known as the Integrated Deepwater System (IDS) program or
Deepwater program for short. The now-separated Deepwater acquisition programs include plans
for, among other things, 91 new cutters, 124 new small boats, and 247 new or modernized
airplanes, helicopters, and unmanned aerial vehicles (UAVs).
The year 2007 was a watershed year for Deepwater acquisition. The management and execution
of what was then the single, integrated Deepwater program was strongly criticized by various
observers. House and Senate committees held several oversight hearings on the program. Bills
were introduced to restructure or reform the program in various ways. Coast Guard and industry
officials acknowledged certain problems in the program’s management and execution and
defended the program’s management and execution in other respects. The Coast Guard
announced a number of reform actions that significantly altered the service’s approach to
Deepwater acquisition (and to Coast Guard acquisition in general).
The Government Accountability Office (GAO) provided new assessments of Deepwater
acquisition programs in a July 2009 report and April 2009 testimony.
The Coast Guard, which is part of the Department of Homeland Security (DHS), requested
$1,051.5 million in FY2010 acquisition funding for Deepwater programs, including $305.5
million for aircraft, $591.4 million for surface ships and boats, and $154.6 million for other items.
The House Appropriations Committee, in its report (H.Rept. 111-157 of June 16, 2009) on the
FY2010 DHS appropriations bill (H.R. 2892), recommends $1,015.0 million in FY2010
acquisition funding for Deepwater programs, including $269.0 million for aircraft, $591.4 million
for surface ships and boats, and $154.6 million for other items.
The Senate Appropriations Committee, in its report (S.Rept. 111-31 of June 18, 2009) on the
FY2010 DHS appropriations bill (S. 1298), recommends $1,194.8 million in FY2010 acquisition
funding for Deepwater programs, including $305.5 million for aircraft, $734.7 million for surface
ships and boats, and $154.6 million for other items.
The Coast Guard Acquisition Reform Act of 2009 (H.R. 1665), the FY2010 Coast Guard
authorization bill (H.R. 3619), and the FY2010 and FY2011 Coast Guard authorization bill (S.
1194) contain provisions that would reform Coast Guard acquisition, including Deepwater
acquisition programs.

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Contents
Introduction ................................................................................................................................ 1
Background ................................................................................................................................ 1
Deepwater Missions.............................................................................................................. 1
Origin of Deepwater Acquisition Effort ................................................................................. 1
Structure of Deepwater Acquisition Effort ............................................................................. 2
Structure Until 2007........................................................................................................ 2
Revised Structure Since 2007 .......................................................................................... 3
Deepwater Assets Planned for Acquisition............................................................................. 3
Acquisition Program Baseline ......................................................................................... 3
2009 Fleet Mix Analysis ................................................................................................. 5
Examples of Deliveries of Deepwater Assets ......................................................................... 5
Deepwater Acquisition Funding ............................................................................................ 6
Prior-Year Funding.......................................................................................................... 6
FY2010 Funding Request................................................................................................ 7
Criticism of Deepwater Management in 2007........................................................................ 8
Coast Guard Reform Actions in 2007 .................................................................................... 8
Justice Department Investigation........................................................................................... 8
Oversight Issues for Congress ..................................................................................................... 9
Overall Management ............................................................................................................. 9
Coast Guard Perspective ................................................................................................. 9
GAO Perspective .......................................................................................................... 11
Potential for Cost Growth.................................................................................................... 15
Coast Guard Perspective ............................................................................................... 15
GAO Perspective .......................................................................................................... 17
Reporting of Costs and Planned Procurement Quantities ..................................................... 18
National Security Cutter (NSC)........................................................................................... 19
Coast Guard Perspective ............................................................................................... 19
GAO Perspective .......................................................................................................... 21
Sentinel Class Fast Response Cutter (FRC) ......................................................................... 25
Coast Guard Perspective ............................................................................................... 26
GAO Perspective .......................................................................................................... 27
110/123-Foot Patrol Boat Modernization............................................................................. 28
Revolving Door and Potential for Conflicts of Interest......................................................... 29
Potential Options for Congress .................................................................................................. 30
Legislative Activity for FY2010 ................................................................................................ 30
Summary of Action on FY2010 Deepwater AC&I Funding Request .................................... 30
FY2010 DHS Appropriations Bill (H.R. 2892/S. 1298) ....................................................... 31
House ........................................................................................................................... 31
Senate ........................................................................................................................... 34
Bills Reforming Coast Guard Acquisition (H.R. 1665, H.R. 3619, and S. 1194)................... 36

Tables
Table 1. Deepwater Assets Planned for Acquisition ..................................................................... 4
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Table 2. Prior-year Deepwater Acquisition Funding..................................................................... 6
Table 3. FY2008-FY2013 Deepwater Acquisition Funding .......................................................... 7
Table 4. [GAO Report Table No. 1]: Cost Growth for NSC 1-3 (Dollars in millions) ................. 23
Table 5. Action on FY2010 Deepwater Acquisition Funding Request ........................................ 30

Appendixes
Appendix A. Criticism of Deepwater Management in 2007 ....................................................... 37
Appendix B. Coast Guard Reform Actions in 2007.................................................................... 41

Contacts
Author Contact Information ...................................................................................................... 44

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Introduction
The term Deepwater refers to a collection of more than a dozen Coast Guard acquisition
programs for replacing and modernizing the service’s aging fleet of deepwater-capable ships and
aircraft. Until April 2007, the Coast Guard pursued these programs as a single, integrated
acquisition program that was known as the Integrated Deepwater System (IDS) program or
Deepwater program for short. The now-separated Deepwater acquisition programs include plans
for, among other things, 91 new cutters, 124 new small boats, and 247 new or modernized
airplanes, helicopters, and unmanned aerial vehicles (UAVs).
The year 2007 was a watershed year for Deepwater acquisition. The management and execution
of what was then the single, integrated Deepwater program was strongly criticized by various
observers. House and Senate committees held several oversight hearings on the program. Bills
were introduced to restructure or reform the program in various ways. Coast Guard and industry
officials acknowledged certain problems in the program’s management and execution and
defended the program’s management and execution in other respects. The Coast Guard
announced a number of reform actions that significantly altered the service’s approach to
Deepwater acquisition (and to Coast Guard acquisition in general).
The Coast Guard’s proposed FY2010 budget requests $1,051.5 million in acquisition funding for
Deepwater programs, including $305.5 million for aircraft, $591.4 million for surface ships and
boats, and $154.6 million for other items.
The issue for Congress is whether to approve, reject, or modify the Coast Guard’s request for
FY2010 acquisition funding for Deepwater programs, and whether to take other actions affecting
Deepwater acquisition. Congress’s decision on this issue could affect Coast Guard capabilities
and funding requirements, Coast Guard acquisition policies and practices, and the industrial base
that produces items for Deepwater acquisition programs.
Background
Deepwater Missions
The Coast Guard performs a variety of missions in the deepwater environment, which generally
refers to waters more than 50 miles from shore. These missions include search and rescue, drug
interdiction, alien migrant interdiction, fisheries enforcement, marine pollution law enforcement,
enforcement of lightering (i.e., at-sea cargo-transfer) zones, the International Ice Patrol in
northern waters, overseas inspection of foreign vessels entering U.S. ports, overseas maritime
intercept (sanctions-enforcement) operations, overseas port security and defense, overseas
peacetime military engagement, and general defense operations in conjunction with the Navy.
Deepwater-capable assets are also used closer to shore for various operations.
Origin of Deepwater Acquisition Effort
The Coast Guard initiated the Deepwater acquisition effort in the late 1990s, following a
determination by the Coast Guard that many of its existing (i.e., “legacy”) deepwater-capable
legacy assets were projected to reach their retirement ages within several years of one another.
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The Coast Guard’s legacy assets at the time included 93 aging cutters and patrol boats and 207
aging aircraft. Many of these ships and aircraft are expensive to operate (in part because the
cutters require large crews), increasingly expensive to maintain, technologically obsolete, and in
some cases poorly suited for performing today’s deepwater missions.
Structure of Deepwater Acquisition Effort
Structure Until 2007
Until 2007, the Coast Guard pursued Deepwater acquisition through a single, performance-based,
system-of-systems acquisition program that used a private-sector lead system integrator (LSI):
System-of-Systems Acquisition. Rather than replacing its deepwater-capable
legacy assets through a series of individual acquisition programs, the Coast
Guard initially decided to pursue the Deepwater acquisition effort as an
integrated, system-of-systems acquisition, under which a combination of new and
modernized cutters, patrol boats, aircraft, along with associated C4ISR1 systems
and logistics support, would be procured as a single, integrated package (i.e., a
system of systems). The Coast Guard believed that a system-of-systems approach
would permit Deepwater acquisition to be optimized (i.e., made most cost
effective) at the overall Deepwater system-of-systems level, rather than
suboptimized at the level of individual Deepwater platforms and systems.
Private-Sector Lead Systems Integrator (LSI). To execute this system-of-
systems acquisition approach, the Coast Guard initially decided to use a private-
sector lead system integrator (LSI)—an industry entity responsible for designing,
building, and integrating the various elements of the package so that it met the
Coast Guard’s projected deepwater operational requirements at the lowest
possible cost.2 The Coast Guard decided to use a private-sector LSI in part
because the size and complexity of the Deepwater program was thought to be
beyond the system-integration capabilities of the Coast Guard’s then-relatively
small in-house acquisition work force.
Performance-Based Acquisition. The Coast Guard initially pursued the
Deepwater program as a performance-based acquisition, meaning that the Coast
Guard set performance requirements for the program and permitted the private-
sector LSI some latitude in determining how the various elements of the
Deepwater system would meet those requirements.
The Coast Guard conducted a competition to select the private-sector LSI for the Deepwater
program. Three industry teams competed, and on June 25, 2002, the Coast Guard awarded the
role to Integrated Coast Guard Systems (ICGS)—an industry team led by Lockheed Martin and
Northrop Grumman Ship Systems (NGSS). ICGS was awarded an indefinite delivery, indefinite
quantity (ID/IQ) contract for the Deepwater program that included a five-year baseline term that
ended in June 2007, and five potential additional award terms of up to five years (60 months)

1 C4I stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.
2 For more on private-sector LSIs, see CRS Report RS22631, Defense Acquisition: Use of Lead System Integrators
(LSIs)—Background, Oversight Issues, and Options for Congress
, by Valerie Bailey Grasso.
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each. On May 19, 2006, the Coast Guard announced that it was awarding ICGS a 43-month first
additional award term, reflecting good but not excellent performance by ICGS. With this
additional award term, the contract has been extended to January 2011.
Revised Structure Since 2007
In 2007, as the Coast Guard’s management and execution of the then-integrated Deepwater
program was being strongly criticized by various observers, the Coast Guard announced a number
of reform actions that significantly altered the service’s approach to Deepwater acquisition (and
to acquisition in general). As a result of these reforms, the Coast Guard, among other things,
stopped pursuing Deepwater acquisition through a single, performance-based, system-of-systems
acquisition program that used a private-sector LSI, and began pursuing Deepwater acquisition as
a collection of individual, defined-based acquisition programs, with the Coast Guard assuming
the lead role as systems integrator for each:
Individual Programs. Although Deepwater acquisition programs still appear in
the budget under the common heading IDS, the Coast Guard is now pursuing
Deepwater acquisition programs as individual programs, rather than as elements
of a single, integrated program. The Coast Guard states that it is still using a
systems approach to optimizing its acquisition programs, including the
Deepwater acquisition programs, but that the system being optimized is now the
Coast Guard as a whole, as opposed to the Deepwater subset of programs.
Coast Guard as System Integrator. The Coast Guard announced in April 2007
that, among other things, it would assume the lead role as systems integrator for
all Coast Guard Deepwater assets (as well as other major Coast Guard
acquisitions as appropriate). The Coast Guard is phasing out its reliance on ICGS
as a private-sector LSI for Deepwater acquisition, and shifting system-integration
responsibilities to itself. To support this shift, the Coast Guard is increasing its in-
house system-integration capabilities.
Defined-Based Acquisition. The Coast Guard has decided to shift from
performance-based acquisition to the use of more-detailed specifications of the
capabilities that various Deepwater assets are to have. The Coast Guard states
that although this new approach involves setting more-detailed performance
specifications, it does not represent a return to minutely-detailed specifications
such as the Military Specification (MilSpec) system once used in Department of
Defense (DOD) acquisition programs. The Coast Guard refers to its new
approach as defined-based acquisition.
Deepwater Assets Planned for Acquisition3
Acquisition Program Baseline
Table 1 shows the Deepwater assets planned for acquisition under a November 2006 Deepwater
Acquisition Program Baseline (APB), and the acquisition cost of these assets in then-year dollars

3 Additional background information on Deepwater acquisition programs is available at the Coast Guard’s acquisition
website at http://www.uscg.mil/acquisition/.
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as estimated at that time. As shown in the table, the total acquisition cost of these assets was
estimated at the time at $24.23 billion in then-year dollars. Acquisition funding for Deepwater
assets were scheduled at the time to be completed in FY2025, and the buildout of the assets was
scheduled at the time to be completed in 2027.
Table 1. Deepwater Assets Planned for Acquisition
(with acquisition costs in millions of then-year dollars, as estimated at the time the Acquisition Program
Baseline was published)
Qty. Item
Cost
Air assets
6
Missionized HC-130J Long Range Surveillance (LRS) aircraft (cost of missionization)
11
16
Modernized and upgraded HC-130H LRS aircraft (cost of modernization and upgrading)
610
36
New HC-144A Medium Range Surveillance (MRS) aircraft (also called Maritime Patrol Aircraft, or
1,706
MPA) based on the European Aeronautic Defence and Space Company (EADS)/CASA CN-235
Persuader MPA aircraft design
42
Modernized and upgraded MH-60T Medium Range Recovery (MRR) helicopters (cost of
451
modernization and upgrading)
102
Modernized and upgraded HH-65C Multi-Mission Cutter Helicopters (MCHs) (cost of
741
modernization and upgrading)
45
New vertical take-off unmanned aerial vehicles (VUAVs), also cal ed unmanned aircraft systems
503
(UASs)
Subtotal air assets
4,022
Surface assets
8
New National Security Cutters, or NSCs, displacing about 4,000 tons each (i.e., ships analogous to
3,450
today’s high-endurance cutters)
25
New Offshore Patrol Cutters, or OPCs, displacing about 3,200 tons each (i.e., ships analogous to
8,098
today’s medium-endurance cutters)
46
New Fast Response Cutters—Class A (FRC-As) displacing roughly 200 tons each, to replace most
2,613
of the Coast Guard’s existing 110-foot Island-class patrol boats
12
New Fast Response Cutters—Class B (FRC-Bs) displacing roughly 200 tons each, to replace the
593
rest of the Coast Guard’s existing 110-foot Island-class patrol boats
27
Medium Endurance Cutters (MECs) upgraded with a Mission Effectiveness Project (MEP) (cost of
317
upgrading)
17
Patrol boats (PBs) upgraded with a MEP (cost of upgrading)
117
124
New smal boats for Deepwater cutters, including 33 Long-Range Interceptors (LRIs) and 91 Short-
110
Range Prosecutors (SRPs)
8
110-foot Island-class PBs converted into 123-foot PBs (cost of conversion; program not successful
95
and halted after 8 boats)
Subtotal surface assets 15,393
C4ISR systems

Common operational picture
1,071
— Shore
systems
102
— Cutter
upgrades
180
Subtotal C4ISR systems
1,353
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Qty. Item
Cost
Integration and oversight

System engineering and oversight
1,118

Government program management
1,518

Technology obsolescence prevention
345

Logistics and infrastructure upgrades
481
Subtotal integration and oversight
3,462
TOTAL 24,230
Source: Deepwater Acquisition Program Baseline (APB) approved November 7, 2006.
Although Table 1 shows 12 FRCs and 46 FRC-Bs, the Coast Guard’s Request for Proposals
(RFP) for the FRC-B program includes options for building up to 34 FRC-Bs (which, if
exercised, would reduce the number of FRC-As to as few as 24). The Coast Guard has also stated
that if the FRC-Bs fully meet the requirements for the FRC, all 58 of the FRCs might be built to
the FRC-B design.
A version of the baseline approved by DHS in May 2007 shows some different quantities
compared to those shown above—specifically, 20 patrol boats upgraded with a MEP (rather than
the 17 shown above); a figure to be determined for an unmanned aerial system (UAS) (rather than
45 VUAVs shown above); and no 110/123-foot modernized Island class patrol boats (rather than
the 8 shown above).4
2009 Fleet Mix Analysis
As a consequence of assuming the role of lead system integrator for Deepwater acquisition
programs, the Coast Guard is currently performing a fleet mix analysis to review its requirements
for Deepwater assets. The analysis, which is to be completed by summer 2009, could lead to
changes in the planned mix of Deepwater assets.5
Examples of Deliveries of Deepwater Assets6
Examples of deliveries and other milestones for Deepwater assets include the following:
• The Coast Guard commissioned the first NSC, Bertholf, into service on August 4,
2008. The second, Waesche, was approximately 90% complete as of July 20,
2009. The third, Stratton, had its keel laying on July 20, 2009, and was more than

4 Government Accountability Office, Coast Guard[:]Update on Deepwater Program Management, Cost, and
Acquisition Workforce
, GAO-09-620T, April 22, 2009, p. 4.
5 Rebekah Gordon, “Coast Guard Conducting Fleet-Mix Analysis for Deepwater Assets,” Inside the Navy, April 6,
2009.
6 Information in this section is taken from the Coast Guard Acquisition Directorate’s web page on acquisition programs
and projects http://www.uscg.mil/acquisition/programs/acquisitionprograms.asp, and Statement of Admiral Thad W.
Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions before the Committee on
Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22 April 2009.
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20% complete as of that date. Long lead-time materials for the fourth NSC,
Hamilton, have been procured.
• The first HC-144A Ocean Sentry MPA aircraft was accepted by the Coast Guard
on March 10, 2008. The eighth aircraft was delivered on June 3, 2009. On
February 6, 2009, an HC-144A officially stood watch for the first time on a
scheduled operational patrol. The aircraft achieved Initial Operational Capability
(IOC) on April 2, 2009.
• The first missionized HC-130J LRS aircraft was accepted by the Coast Guard on
February 29, 2008. As of April 2009, new surface search radars had been
installed on five HC-130H LRS aircraft.
• The first production MH-60T was delivered to the U.S. Coast Guard June 3,
2009. The MH-60T is scheduled to achieve IOC in fall 2009. All 42 H-60 aircraft
in service are scheduled to be fully modernized by 2020.
• The Coast received its first MH-65C helicopter in October 2007. As of July 16,
2009, the Coast Guard had configured and delivered 42 MH-65Cs.
Developmental in-flight testing of the MH-65D began on March 23, 2009.
Deepwater Acquisition Funding
Prior-Year Funding
Table 2 below shows prior-year acquisition funding for Deepwater acquisition programs. As can
be seen in the table, the programs have received a net total of about $6.1 billion in acquisition
funding through FY2009, including $1,034.0 million in FY2009.
Table 2. Prior-year Deepwater Acquisition Funding
(in millions of dollars, rounded to nearest tenth)
Priora FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Request
n/a 320.2 500.0 500.0 678 966.0 934.4 836.9 990.4
Appropriation
n/a 320.2 478.0 668.2 724.0 933.1 1065.9 783.3 1034.0
Rescissions
n/a 3.1 57.6 38.9 98.7 132.4
Transfers
n/a
49.7 77.8 78.7

Supplemental
n/a 124.2
appropriations
Totalb
117.0 320.2 474.9 610.6 734.8 1036.4 1144.6 650.8 1034.0
Cumulative totalb
117.0 437.2 912.1 1522.7 2257.5 3293.9 4438.5 5089.3 6123.3
Source: Prepared by CRS using Coast Guard data provided on January 29, 2007 (FY2007 and prior years), and
FY2008 and FY2009 appropriations bills for FY2008 and FY2009. Totals may not add due to rounding.
Note: n/a=not available
a. Pre-award funding prior to 2002.
b. Excludes HC-130J funding prior and airborne use-of-force funding prior to FY2007.
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FY2010 Funding Request
Table 3 shows acquisition funding requested for the Deepwater program for FY2010, along with
FY2009 funding. As shown in the table, the Coast Guard has requested $1,051.5 million in
FY2010 acquisition funding for Deepwater programs, including $305.5 million for aircraft,
$591.4 million for surface ships and boats, and $154.6 million for other items.
Table 3. FY2008-FY2013 Deepwater Acquisition Funding
(in millions of dollars, rounded to nearest tenth; as shown in FY2009 budget)
Program
FY09 enacted
FY10 requested
Maritime Patrol Aircraft (MPA)
86.6
175.0
HH-60 Conversion Projects
52.7
45.9
HH-65 Conversion/Sustainment Projects
64.5
38.0
HC-130H Conversion/Sustainment Projects
24.5
45.3
HC-130J Fleet Introduction
13.3
1.3
Umanned aircraft system (UAS)
3.0
0
Subtotal aircraft
244.6
305.5
National Security Cutter (NSC)
353.7
281.5
Offshore Patrol Cutter (OPC)
3.0
9.8
Fast Response Cutter (FRC)
115.3
243.0
Deepwater smal boats
2.4
3.0
Medium-endurance cutter sustainment
35.5
31.1
Patrol boats sustainment
30.8
23.0
Polar icebreaker sustainment
30.3a 0
Subtotal surface ships
571.0
591.4
Government program management
58.0
45.0
Systems engineering and integration
33.1
35.0
C4ISRb 88.1
35.0
Deepwater logistics
37.7
37.7
Technology obsolescence prevention
1.5
1.9
Subtotal other
218.4
154.6
TOTAL 1,034.0
1,051.5
Source: U.S. Coast Guard Posture Statement With [FY] 2009 Budget in Brief, p. 49 (Table 4). Totals may not
add due to rounding.
a. The Coast Guard states that “Polar icebreaker sustainment is not a Deepwater program but is displayed to
align with the FY2009 Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, P.L.
110-329.”
b. Command and control, communications, computers, intelligence, surveillance and reconnaissance.
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Criticism of Deepwater Management in 2007
The management and execution of the then-integrated Deepwater program was strongly criticized
in 2007 by the DHS Inspector General (IG),7 GAO,8 the Defense Acquisition University (DAU)
(whose analysis was requested by the Coast Guard),9 several Members of Congress from
committees and subcommittees that oversee the Coast Guard, and other observers. House and
Senate committees held several oversight hearings on the program, at which non-Coast Guard,
non-ICGS witnesses, as well as several Members of Congress, strongly criticized the
management and execution of the program. Criticism focused on overall management of the
program, and on problems in three cutter acquisition efforts—the NSC, the modernization of the
110-foot patrol boats, and the FRC. For a more detailed discussion, see Appendix A.
Coast Guard Reform Actions in 2007
In 2007, as the Coast Guard’s management and execution of the then-integrated Deepwater
program was being strongly criticized by various observers, the Coast Guard announced a number
of reform actions that significantly altered the service’s approach to Deepwater acquisition (and
to Coast Guard acquisition in general). For a more detailed discussion, see Appendix B.
Justice Department Investigation
On April 18, 2007, it was reported that the Justice Department was conducting an investigation of
the Deepwater program. Press reports at the time stated that investigation centered on
communications systems, the conversion of the Coast Guard’s 110-foot patrol boats, and the
National Security Cutter (NSC). The Justice Department reportedly notified Lockheed, Northrop,

7 See, for example, Statement of Richard L. Skinner, Inspector General, U.S. Department of Homeland Security, Before
the Committee on Transportation and Infrastructure, Subcommittee on Coast Guard and Maritime Transportation, U.S.
House of Representatives, “Deepwater: 120-Day Update,” June 12, 2007; as well as Department of Homeland Security,
Office of Inspector General, Acquisition of the National Security Cutter, OIG -07-23, January 2007 (available online at
http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-23_Jan07.pdf); Department of Homeland Security, Office of
Inspector General, 110’/123’ Maritime Patrol Boat Modernization Project, OIG -07-27, January 2007 (available online
at http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-27_Feb07.pdf); U.S. Department of Homeland Security, Office of
Inspector General, Major Management Challenges Facing the Department of Homeland Security (Excerpts from the
FY 2006 DHS Performance and Accountability Report)
, December 2006. (OIG-07-12); and U.S. Department of
Homeland Security, Office of Inspector General. Improvements Needed in the U.S. Coast Guard’s Acquisition and
Implementation of Deepwater Information Technology Systems
, August 2006. (Office of Information Technology,
OIG-06-55).
8 See, for example, Government Accountability Office, Coast Guard[:] Challenges Affecting Deepwater Asset
Deployment and Management and Efforts to Address Them
, GAO-07-874, June 2007; Government Accountability
Office, Coast Guard[:] Status of Efforts to Improve Deepwater Program Management and Address Operational
Challenges, Statement of Stephen L. Caldwell, Acting Director Homeland Security and Justice Issues, Testimony
Before the Subcommittee on Coast Guard and Maritime Transportation, Committee on Transportation and
Infrastructure, House of Representatives
, GAO-07-575T, March 8, 2007; and Government Accountability Office,
Coast Guard[:] Coast Guard Efforts to Improve Management and Address Operational Challenges in the Deepwater
Program, Statement of Stephen L. Caldwell, Acting Director Homeland Security and Justice Issues, Testimony Before
the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard, Committee on Commerce, Science and
Transportation, U.S. Senate
, GAO-07-460T, February 14, 2007.
9 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater Program, February 2007.
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and certain other firms involved in the Deepwater program of the investigation on December 13,
2006, and directed the firms to preserve all documents relating to the program.10
Oversight Issues for Congress
Potential oversight issues for Congress include but are not necessarily limited to the Coast
Guard’s overall management of Deepwater acquisition, potential cost growth, the status of certain
individual Deepwater acquisition programs, and the so-called revolving door issue.
Overall Management
Coast Guard Perspective
The Coast Guard testified in April 2009 that:
Efforts to consolidate the Coast Guard Acquisition Directorate, assume Lead System
Integrator responsibilities, and implement the [Coast Guard’s] Blueprint for Acquisition
Reform
[document] have left us better equipped to manage costs, schedules and performance.
These business improvements have led to a number of high profile project successes.
Consider the recent award of the Fast Response Cutter (FRC) Sentinel-class patrol boat.
Initially planned as part of the Deepwater program, to be delivered through Integrated Coast
Guard Systems (ICGS), we took this project back within the Coast Guard to ensure full and
open competition and responsible program management. We have followed our reformed
acquisition processes, conducting a deliberative proposal review and award determination
with integrated participation from technical authorities and the operational community. The
FRC’s proven parentcraft design will minimize cost and schedule risk and mitigate the patrol
boat hour gap in the shortest time possible. Neither ICGS nor the Coast Guard’s pre-
modernized acquisition program could have accomplished this feat as efficiently or
effectively, and I am confident we will build on this record of advances for future
acquisitions programs as well....
Today, I am pleased to discuss our wholly reformed acquisition organization, an organization
with processes and procedures in place to ensure successful program management and
oversight. I expect further challenges, but I have the utmost confidence that the processes
now in place allow us to address those challenges head-on and facilitate delivery of assets
and systems with capabilities to meet the mission needs of today and tomorrow.
The most pointed example of the success of our reformed acquisition processes is Fast
Response Cutter Sentinel-class patrol boat. With a total potential contract value of more than
$1 billion, it was a highly competitive process, and our selection survived two post-award
protests, demonstrating that our robust acquisition process was beyond reproach.
As the yard stick by which to measure the success of our reformed acquisition enterprise, the
Sentinel project provides a number of assurances - all built on the cornerstones for successful
acquisition - for its own and future acquisition management successes, including:

10 Ana Radelat, “Justice Investigating Deepwater Contractors,” NavyTimes.com, April 18, 2007; Chris Strohm,
“Deepwater Contractors Face Justice Probe” GovExec.com, April 19, 2007; Patricia Kime, “Justice Investigating
Deepwater Contract,” NavyTimes.com, April 20, 2007.
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• Establishment and maintenance of a direct Coast Guard relationship with the contractor,
rather than through a separate lead systems integrator;
• Development of detailed technical requirements, and firm adherence to those requirements
throughout the proposal design evaluation process and construction;
• Classification of cutters to established and recognized standards (i.e., American Bureau of
Shipping and High Speed Naval Vessel Rules);
• Use of parent craft designs where applicable, with parent craft designer and builder co-
located on engineering team;
• On-site government staff at production facilities;
• Fixed price contract structure;
• Extensive involvement of technical authority throughout acquisition and delivery process;
• Independent validation (i.e., independent cost estimates and design assessments);
• Leveraging Navy and other government partnerships; and,
• Ability to re-compete thru options for data and licensing.
The Sentinel project has become the model for all current and future Coast Guard acquisition
programs. By adopting needed reforms, and guided by this Subcommittee, we’ve
demonstrated the right way to develop and manage an acquisition project. With those
reforms solidly in place, the foundation for continued success is firm....
As acquisition policy and process improvements have promoted project successes, one
persistent set of challenges has been the recruitment, development, and retention of a highly
qualified acquisition workforce. We have accomplished much in our reforms of contracting,
business and financial management, program management, systems engineering and other
key disciplines. But, like other federal agencies, we must work hard to attract and retain the
best and brightest in a highly competitive market.
In the 1990s, the level of investment in Coast Guard acquisition was approximately $200
million. In FY 2009, we were appropriated nearly $1.5 billion for our recapitalization
programs. This growth in investment has required our professional workforce to grow to
ensure adequate program management and contractor oversight and management. We have
worked hard to build capacity. Today the Acquisition Directorate has 855 military and
government civilian personnel, and is continuing to grow—including 104 added positions in
2008 and another 65 positions in 2009.
With many agencies competing for qualified acquisition professionals, it is critically
important for the Coast Guard to remain competitive in the labor market. The Coast Guard
must be able to use all hiring and workforce management tools effectively and expeditiously.
Once hired, however, another challenge is ensuring the appropriate training, skills, and
career progression for our workforce. As a government manager, I have an obligation to
properly equip my personnel with the skills and tools they need to accomplish their missions.
One of the areas where we have placed enormous pressure is on our training and certification
programs. A couple of years ago we had a lot of people who might have had the right
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experience but had not completed required training or certification, so it was difficult to see
standardized skills across projects. We have addressed this challenge. Today, of the 14 Level
I investments in our acquisition portfolio (valued at greater than $1 billion total life cycle
cost), 100 percent are led by DHS Level III (the highest level) certified program managers.
We have also developed a new Human Capital Strategic Plan that outlines several goals
aimed at improving the skills of our workforce. An overarching objective is to raise the
profile of Coast Guard acquisition as a profession with well-defined career paths for both
uniformed and civilian employees. That strategy sets goals for training and educational
opportunities, using internal resources as well as reaching out to third parties, such as the
Defense Acquisition University and the Naval Postgraduate School, to provide additional
support.
The goal in these efforts is to improve the career path that can be followed by uniformed and
civilian employees, ultimately narrowing the gap between the complexity of acquisition tasks
and the availability of skilled workers to accomplish them....
With acquisition reform firmly taking root, the future of Coast Guard acquisition is bright.
We have learned from the past, but our focus remains on the future. Reformed processes
have already led to acquisition success, but I am confident our greatest successes lay ahead,
if we remain committed to the foundational principles and acquisition cornerstones that have
driven our reforms. As the Coast Guard’s mission support organization is established fully,
those principles will become further engrained in our mission support and acquisition
culture.
The future will see new requirements for ever new assets and systems. In fact, we will soon
begin the largest single acquisition project in our history—the Off-Shore Patrol Cutter. Now
that our reforms are in place, I am confident that this and other future projects will be
managed effectively and efficiently.11
GAO Perspective
GAO for several years has been assessing, providing reports and testimony on, and making
recommendations for Coast Guard management of Deepwater acquisition. The Coast Guard has
implemented many of GAO’s recommendations. The extent to which the Coast Guard has
implemented GAO recommendations has been a topic of congressional oversight for Deepwater
acquisition.
GAO provided its new assessments of the management of Deepwater acquisition programs in a
July 2009 report12 and April 2009 testimony.13 The July 2009 report stated:

11 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 2-3, 8-11.
12 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, 34 pp. See
also Government Accountability Office, Coast Guard[:]Observations on the Fiscal Year 2010 Budget and Related
Performance and Management Challenges
, Testimony Before the Subcommittee on Oceans, Atmosphere, Fisheries,
and Coast Guard, Committee on Commerce, Science, and Transportation, U.S. Senate, GAO-09-810T, July 7, 2009,
pp. 21-25.
13 Government Accountability Office, Coast Guard[:]Update on Deepwater Program Management, Cost, and
Acquisition Workforce
, GAO-09-620T, April 22, 2009, 17 pp.
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The Coast Guard has assumed the role of systems integrator for Deepwater, concurrently
downsizing the scope of systems engineering and integration work under contract with
ICGS. In conjunction with its role as systems integrator, the Coast Guard has undertaken a
fundamental reassessment of the capabilities and mix of assets it needs to meet its Deepwater
missions. In addition, DHS and the Coast Guard have made improvements in oversight and
management of Deepwater; for example, the Coast Guard has made progress in applying the
MSAM acquisition process to individual Deepwater assets and made improvements to the
process as a whole. However, the Coast Guard did not meet its goal of having all assets fully
compliant with the MSAM by the end of March 2009. Hence, acquisition decisions for
certain assets are being made without having completed some key acquisition documentation
in light of what the Coast Guard views as pressing operational needs.
The role of systems integrator involves determining the mix of assets needed to fulfill
mission needs, as well as designing, procuring, and integrating those assets into a system-of-
systems capability greater than the sum of the individual parts. ICGS’s role as systems
integrator for the Deepwater Program included managing requirements, determining how
assets would be acquired, defining how assets would be employed by Coast Guard users in
an operational setting, and exercising technical authority over all asset design and
configuration. In 2008, the Coast Guard acknowledged that in order to assume the role of
systems integrator, it needed to define systems integrator functions and assign them to Coast
Guard stakeholders. As a result, the Coast Guard has established new relationships among its
directorates to assume control of key systems integrator roles previously carried out by the
contractor. Through a series of policy changes and memoranda, the Coast Guard formally
designated certain directorates as technical authorities responsible for establishing,
monitoring, and approving technical standards for Deepwater assets related to design,
construction, maintenance, logistics, C4ISR, and life-cycle staffing and training.
Furthermore, the Coast Guard’s capabilities directorate is now responsible for determining
operational requirements and the asset mix to satisfy those requirements. This directorate is
expected to collaborate with the technical authorities to ensure that the Coast Guard’s
technical standards are incorporated during the requirements development process. Finally,
the acquisition directorate’s program and project managers are responsible for procuring the
assets and are to be held accountable for ensuring that they fulfill the operational
requirements and the technical authority standards established by the other directorates....
When it contracted with ICGS in 2002, the Coast Guard lacked insight into how the
contractor’s proposed solution for Deepwater would meet overall mission needs. This
situation limited the Coast Guard’s ability to make informed decisions about possible trade-
offs between cost and capability. As a way of improving its insight, the capabilities
directorate has initiated a fundamental reassessment of the capabilities and mix of assets the
Coast Guard needs to fulfill its Deepwater missions. The goals of this fleet mix analysis
include validating mission performance requirements and revisiting the number and mix of
all assets that are part of the Deepwater Program. A specific part of the study will also
analyze alternatives and quantities for the OPC, which currently accounts for a projected $8
billion—about 33 percent—of total Deepwater costs. Coast Guard leadership intends to base
future procurement decisions on the results of this analysis, which is expected to be
completed in the summer of 2009. According to a senior official in the capabilities
directorate, the directorate has recommended that this type of analysis be repeated every 4
years, or once during each commandant’s tenure.
In conjunction with assuming the role of systems integrator, the Coast Guard has reduced the
scope and volume of ICGS’s systems engineering and integration functions. For example,
the most recent systems engineering and integration task order, issued to ICGS in March
2009, is limited to support services such as data management and quality assurance for the
assets currently on contract with ICGS, such as the Maritime Patrol Aircraft (MPA), the
National Security Cutter (NSC), and C4ISR. By contrast, under the prior systems
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Coast Guard Deepwater Acquisition Programs

engineering and integration task order, ICGS was responsible for systems integrator
functions such as developing the mix of assets to meet Coast Guard missions, the
development of operational concepts, requirements management, test and evaluation
management, and a number of other program management and system-of-systems level
functions.
While the Coast Guard does not intend to cancel ongoing orders with ICGS for services or
assets, it does not plan to acquire future assets from ICGS. A step in this direction was the
September 2008 competitive award of the Fast Response Cutter to Bollinger Shipyards, Inc.
Further, while ICGS will continue to be responsible for the construction and delivery of the
first three NSCs, the Coast Guard intends to award contracts for construction and long-lead-
time materials for future NSCs directly to ICGS subcontractor Northrop Grumman
Shipbuilding. The Coast Guard’s decision was formalized in a March 2009 contract
modification with ICGS stating that it will not award future work to ICGS after the current
award term ends in January 2011....
Since our June 2008 report on the Deepwater Program, and taking into account our
recommendations, the Coast Guard and DHS have taken steps to improve management and
oversight of Deepwater. We reported, for example, that the Coast Guard had transitioned
from a system-of-systems acquisition approach to an asset-based approach that reflects the
disciplined and formalized process outlined in its MSAM. While the introduction of this
process was a significant improvement, we found that the absence of a key milestone
decision point before low-rate initial production begins was problematic and put program
outcomes at risk. In response to our recommendation, the Coast Guard revised its MSAM to
require a formal design review, termed “acquisition decision event 2B,” to ensure that risks
are appropriately addressed before low-rate initial production is authorized....
The Coast Guard has made other improvements to its MSAM process. For example, the
MSAM now includes standardized cost-estimating procedures to provide an accounting of
all resources required to develop, produce, deploy, and sustain a program. Before, there was
minimal guidance in the manual about the cost-estimating process; it now includes a full
description of the process and a cost-estimating template for project managers. The MSAM
process was also revised to require acquisition planning and an early affordability assessment
prior to acquisition decision event 1 (the “analyze/select” phase), to help inform the budget
and planning processes.
DHS has also improved its oversight and management of the Deepwater Program by
reviewing the program under its own acquisition processes. In June 2008, we reported that
DHS approval of Deepwater acquisition decisions at key points in the program was not
required, as the department had deferred decisions on specific assets to the Coast Guard in
2003. We recommended that DHS rescind the delegation of Deepwater acquisition authority,
and, in September 2008, the Under Secretary did so. As a result, DHS officials are now
formally involved in reviewing and approving acquisition decisions for Deepwater assets at
key points in the program’s life cycle. In November 2008, DHS issued a new interim
management directive that, if implemented as intended, should help ensure that the
department’s largest acquisitions, including Deepwater, are more effectively overseen and
managed.8
Because the Coast Guard had previously exempted Deepwater from its MSAM process,
assets were procured without following a disciplined program management approach.
Recognizing the importance of ensuring that each acquisition project is managed through a
sustainable and repeatable process and wanting to adhere to proven acquisition procedures,
in July 2008 the Coast Guard set a goal of completing the MSAM acquisition management
activities for all Deepwater assets by the end of March 2009. However, of the 13 Deepwater
assets, 9 were behind schedule in terms of MSAM compliance as of May 2009, as not all
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required documents and processes had been completed. Not complying with the MSAM
process puts the Coast Guard at risk of buying assets that do not fully meet its needs and that
may experience cost growth and schedule slips.14
Regarding the Coast Guard’s acquisition work force for executing Deepwater acquisition, the July
2009 GAO report stated:
The Coast Guard sought a systems integrator at the outset of the Deepwater Program in part
because its workforce lacked the experience and depth to manage the acquisition internally.
The Coast Guard acknowledges that it still faces challenges in hiring and retaining qualified
acquisition personnel and that this situation poses a risk to the successful execution of its
acquisition programs. According to human capital officials in the acquisition directorate, as
of April 2009 the acquisition branch had funding for 855 military and civilian personnel and
had filled 717 of these positions—leaving 16 percent unfilled. The Coast Guard has
identified some of these unfilled positions as core to the acquisition workforce, such as
contracting officers and specialists, program management support staff, and engineering and
technical specialists. Even as it attempts to fill its current vacancies, the Coast Guard plans to
increase the size of its acquisition workforce significantly by the end of fiscal year 2011. For
example, the Coast Guard’s fiscal year 2010 budget request includes funding for 100 new
acquisition workforce positions, and the Coast Guard anticipates requesting funding for
additional positions in future budget requests.
To supplement and enhance its internal expertise, the Coast Guard has increased its use of
third-party, independent experts from outside both the Coast Guard and existing Deepwater
contractors. For example, a number of organizations within the Navy have provided views
and expertise on a wide range of issues, including testing and safety. In addition, the Coast
Guard plans to use the American Bureau of Shipping, an organization that establishes and
applies standards for the design and construction of ship and other marine equipment, as an
advisor and independent reviewer on the design and construction of the Fast Response
Cutter. The Coast Guard has also begun a relationship with a university-affiliated research
center to supplement its expertise as it executes its fleet-mix analysis.
In addition to third-party experts, the Coast Guard has been increasing its use of support
contractors. As of fiscal year 2009, approximately 170 contractor employees supported the
acquisition directorate, a number that has steadily increased in recent years. These
contractors are performing a variety of services—some of which support functions the Coast
Guard has identified as core to the government acquisition workforce—including project
management support, engineering, contract administration, and business analysis and
management. While support contractors can provide a variety of essential services, their use
must be carefully overseen to ensure that they do not perform inherently governmental
roles.12 The Coast Guard, acknowledging this risk, is monitoring its use of support
contractors to properly identify the functions they perform and has developed a policy to
define what is and what is not inherently governmental.
While the Coast Guard may be hard-pressed to fill the government acquisition positions it
has identified both now and in the future, it has made progress in identifying the broader
challenges it faces and is working to mitigate them. The Coast Guard has updated two
documents key to this effort, the Blueprint for Acquisition Reform, now in its third iteration,
and the Acquisition Human Capital Strategic Plan, which is in its second iteration. Each
document identifies challenges the Coast Guard faces in developing and managing its

14 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, pp. 6-12.
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acquisition workforce and outlines initiatives and policies to meet these challenges. For
example, the Acquisition Human Capital Strategic Plan sets forth three overall challenges
and outlines over a dozen strategies for addressing them in building and maintaining an
acquisition workforce. The discussion of strategies includes status indicators and milestones
for monitoring progress, as well as supporting actions such as the formation of partnerships
with the Defense Acquisition University and continually monitoring turnover in critical
occupations. The Blueprint for Acquisition Reform supports many of these initiatives and
provides deadlines for their completion. In fact, the Coast Guard has already completed a
number of initiatives including
• achieving and maintaining Level III program manager certifications,
• adopting a model to assess future workforce needs,
• incorporating requests for additional staff into the budget cycle,
• initiating tracking of workforce trends and metrics,
• expanding use of merit-based rewards and recognitions, and
• initiating training on interactions and relationships with contractors.15
Potential for Cost Growth
Coast Guard Perspective
The Coast Guard testified in April 2009 that:
[a] persistent challenge is controlling costs in complex, multiple-year projects – especially
those costs driven by economic factors outside the Coast Guard’s control, more specifically,
those types of cost increases recently impacting the National Security Cutter and Maritime
Patrol Aircraft projects. Current economic conditions have seen a steady six-month decline
in the cost of commodities such as nickel, steel and copper. However, when we award
production contracts, our contract price reflects commodity prices at the time of award.
In the case of the National Security Cutter we are executing production contracts for NSCs
two and three and the long lead time materials contract for NSC four that were priced based
on historically high commodity and fuel prices in effect during the summer of 2008.
Likewise, when current NSC and MPA contracts were awarded, the value of the U.S. dollar
was at a record low when compared to other foreign currencies, meaning all foreign
components necessary for production were more expensive.
While the government will never be able to eliminate these types of cost changes completely,
we have taken steps to minimize their impact within Coast Guard acquisitions. Once again,
by building on the cornerstones for acquisition success, we have established a firm
commitment to independent cost estimates within each project to validate projected program
costs. We have initiated more rigorous government oversight of contractor performance and
cost accounting, including renewed emphasis on Earned Value Management data. And we

15 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, pp. 22-24.
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continue to work with industry to balance risk and ensure affordable acquisition programs at
best value for the government.16
A July 2009 news report stated:
The total cost of the Coast Guard’s beleaguered Deepwater acquisition program is a “moving
target” that could rise beyond the latest $26.3 billion price tag, but the completion date for
the purchases could come sooner than projected, the service’s top officer testified last
week....
At a July 7 oversight hearing of the oceans, atmosphere, fisheries and Coast Guard
subcommittee [of the Senate Commerce, Science, and Transportation Committee],
Commandant Adm. Thad Allen agreed with lawmakers when asked if the Deepwater dollar
figure was a “moving target.”
In 1998, the Coast Guard stated that the 15 acquisition and recapitalization programs that fell
under the Deepwater program purview—primarily offshore cutters and aircraft—cost $17
billion; in 2005, the cost was revised to $24.2 billion. In April, the Government
Accountability Office reported that Deepwater costs would increase by $2.1 billion to $26.3
billion.
The Deepwater program assigned a lead systems integrator role to a third party dubbed
Integrated Coast Guard Systems, a partnership between Lockheed Martin and Northrop
Grumman. The venture reached a breaking point when ICGS delivered eight converted 123-
foot patrol boats to the service with major structural problems, and in April 2007, Allen
decommissioned the boats and called for the Coast Guard to become the LSI for Deepwater
and other major acquisitions. A single Coast Guard acquisition directorate now manages 22
acquisition programs to rebuild the service’s aging fleet.
The Coast Guard is currently “disaggregating the collective body of work” that was awarded
to ICGS and is establishing a new acquisition baseline for each program.
“That has resulted in some changes of cost estimates, but it remains a work in progress,”
Allen said, noting that programs such as the Fast Response Cutter, long-range surveillance
aircraft (including six new C-130Js and modernizing 16 C-130Hs), and H-60 and H-65
helicopters upgrades are still under review. The acquisition baseline review of other
programs, such as the Offshore Patrol Cutter and unmanned aerial systems, has not yet
begun.
“These could ultimately result in different changes either up or down,” Allen said. “As we
disaggregate what was a collective estimate for the entire system, we’re going to take each
individual platform, which we will now openly compete, [and] sort of move into a different
competitive and contractual environment.”
He added it was too soon to state a new number beyond the $26.3 billion, which he did not
dispute.17

16 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 17-18.
17 Rebekah Gordon, “Coast Guard Commandant: Deepwater Price Tag A ‘Moving Target,’” Inside the Navy, July 13,
2009.
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GAO Perspective
Regarding the potential for cost growth in Deepwater acquisition programs, the July 2009 GAO
report stated:
Due in part to the Coast Guard’s increased insight into what it is buying, the anticipated cost,
schedules, and capabilities of many of the Deepwater assets have changed since the
establishment of the $24.2 billion baseline in 2007. Coast Guard officials have stated that
this baseline reflected not a traditional cost estimate, but rather the anticipated contract costs
as determined by ICGS. As the Coast Guard has developed its own cost baselines, it has
become apparent that some of the assets will likely cost more than anticipated. Information
to date shows that the total cost of the program will likely grow by at least $2.7 billion. This
represents growth of approximately 39 percent for those assets with revised cost estimates.
Furthermore, assets may be ready for operational use later than anticipated in the 2007
baseline and, at least initially, lack some of the capabilities envisioned. As the Coast Guard
develops more baselines, further cost and schedule growth is likely to become apparent.
While the Coast Guard plans to update its annual budget requests with this new information,
the current structure of its budget submission to Congress does not include details at the asset
level, such as estimates of total costs and total numbers to be procured.
The $24.2 billion baseline for the Deepwater Program established cost, schedule, and
operational requirements for the Deepwater system as a whole; these were then allocated to
the major assets. Coast Guard officials have stated that this baseline reflected not a
traditional cost estimate but ICGS’s anticipated contract costs. Furthermore, the Coast Guard
lacked insight into how ICGS arrived at some of the costs for Deepwater assets. As the Coast
Guard has assumed greater responsibility for management of the Deepwater Program, it has
begun to improve its understanding of costs by establishing new baselines for individual
assets based on its own cost estimates. These baselines begin at the asset level and are
developed by Coast Guard project managers, validated by a separate office conducting
independent cost estimates within the acquisition branch and, in most cases, are reviewed
and approved by DHS. The estimates use common cost-estimating procedures and
assumptions and account for costs not previously captured. As of June 2009, the Coast Guard
had prepared 10 revised asset baselines. Two were approved by the Coast Guard (for the
sustainment projects for the medium endurance cutter and the patrol boats) and 8 had been
submitted to DHS, which had approved 5 of them. These new baselines are formulated using
various sources of information, depending on the acquisition phase of the asset. For example,
the baseline for the NSC was updated using the actual costs of material, labor, and other
considerations already in effect at the shipyards. The baselines for other assets, like the
MPA, were updated using independent cost estimates. As the Coast Guard approaches major
milestones on Deepwater assets, such as the decision to enter low-rate initial production or to
begin system development, officials have stated that the cost estimates for all assets will be
reassessed and revalidated.
In developing its own asset baselines, the Coast Guard has found that some of the assets will
likely cost more than anticipated. As of June 2009, with 7 of the 10 baselines approved, the
total cost of the program will likely exceed $24.2 billion, with potential cost growth of
approximately $2.7 billion. For the assets with revised cost estimates, this represents cost
growth of approximately 39 percent. As baselines for the additional assets are approved,
further cost growth will likely become apparent....
The Coast Guard’s new baselines provide not only a better understanding of the costs of
Deepwater assets, but also insight into the drivers of any cost growth. For example, the new
NSC baseline attributes a $1.3 billion rise in cost to a range of factors, from the additional
costs to correct fatigue issues on the first three cutters—estimated by the Coast Guard to add
an additional $86 million—to changes in economic factors such as labor and commodity
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prices that add an additional $434 million to the cost of the first four ships. The $517 million
rise in cost for the MPA is attributed primarily to items that were not previously accounted
for, including $36 million for a training simulator, $30.6 million in facility improvements,
and $124 million for sufficient spare parts. An additional $115.9 million is attributable to
cost growth for the aircraft and engineering changes.
The Coast Guard has structured some of the new baselines to indicate how cost growth could
be controlled by making trade-offs in asset quantities and/or capabilities. For example, the
new MPA baseline includes cost increments that show the acquisition may be able to remain
within the $1.7 billion estimate established in the 2007 baseline if 8 fewer aircraft than the
planned 36 are acquired. Coast Guard officials have stated that other baselines currently
under review by DHS present similar cost increments. This information, if combined with
data from the fleet mix study to show the effect of quantity or capability reductions on the
system-of-systems as a whole, offers an opportunity to the Coast Guard for serious
discussions of cost and capability trade-offs. Given the approximately 39 percent cost growth
for the Deepwater assets that have revised cost estimates, the trade-off assessment is
critical—particularly with regard to the OPC, which currently represents a substantial portion
of the planned Deepwater investment.
The Coast Guard’s reevaluation of baselines has also improved insight into the schedules for
when assets will first be available for operations and when final assets will be delivered. For
example, the initial operating capability of the first NSC has been delayed by a year as
compared to the schedule in the 2007 baseline, and the MPA has been delayed by 21
months....
Since many Deepwater assets are intended to replace older Coast Guard assets, delays in
their introduction and final deliveries could have an effect beyond the Deepwater Program.
For example, the NSC—together with the OPC—is intended to replace older High
Endurance and Medium Endurance Cutters, some of which have been in service for over 40
years. According to Coast Guard officials, the longer these older cutters remain in service—
due to a delay in the introduction of the NSC or the OPC to the fleet or delays in delivering
all of the assets—the more funding will be required for maintenance of assets that are being
replaced. According to a senior official in the Coast Guard’s acquisition directorate,
additional, unplanned funding will be required for a sustainment project to keep the High
Endurance Cutters in service longer than anticipated. An acquisition strategy to achieve this
project is currently in development.
The Coast Guard’s reevaluation of baselines has also changed its understanding of the
capabilities of Deepwater assets. For example, Coast Guard officials stated that the
restructuring of the unmanned aircraft and small boat projects has delayed the deployment of
these assets with the first NSC and reduces the ship’s anticipated capabilities in the near
term. We plan to report this summer on the operational effect of these delays on the NSC.18
Reporting of Costs and Planned Procurement Quantities
Regarding Coast Guard reporting of costs and planned procurement quantities for Deepwater
acquisition programs, the July 2009 GAO report stated:

18 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, pp. 17-21.
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The Coast Guard’s budget submission, as currently structured, limits Congress’s
understanding of details at the asset level in so far as it does not include key information
such as assets’ total acquisition costs or, for the majority of assets, the total quantities
planned. For example, while the justification of the NSC request includes a detailed
description of expected capabilities and how these capabilities link to the Coast Guard’s
missions and activities funded by past appropriations, it does not include estimates of total
program cost, future award or delivery dates of remaining assets, or even the total number of
assets to be procured.
Our past work has emphasized that one key to a successful capital acquisition, such as the
multibillion-dollar ships and aircraft the Coast Guard is procuring, is budget submissions that
clearly communicate needs.11 An important part of this communication is to provide
decision makers with information about cost estimates, risks, and the scope of a planned
project before substantial resources are committed. Good budgeting also requires that the full
costs of a project be considered upfront when decisions are made. Other federal agencies that
acquire systems similar to those of the Coast Guard, such as the Department of Defense,
capture these elements in justifications of their budget requests....
While the Coast Guard’s asset-level Quarterly Acquisition Reports to Congress and the
annual Deepwater Program Expenditure Report include some information on total costs and
quantities, these documents are provided only to the appropriations committees, and they
contain selected information that is restricted due to acquisition sensitive material. The
budget justification prepared by the Coast Guard is a tool that Congress uses in its budget
and appropriations deliberations. Presentation of information on the full costs and quantities
of Deepwater assets in the Coast Guard’s budget submission can provide Congress greater
insights in fulfilling its roles of providing funding and conducting oversight.19
National Security Cutter (NSC)
Oversight issues concerning the NSC program include whether the original design for the NSC
was rugged enough to ensure that the ships could be operated for their full 30-year intended
service lives; whether the electronic systems on the ship met technical standards (including some
referred to as TEMPEST) for information assurance (or IA—the ability of the ship’s various
electronic systems to protect classified data); and cost growth in building the ships.
Coast Guard Perspective
The Coast Guard testified in April 2009 that:
We have been actively running Bertholf through her paces during the operational test and
evaluation process now underway and have received very positive feedback from her crew
and the Coast Guard’s operational community. Of particular note, Bertholf has conducted her
first operational patrols and completed flight deck dynamic interface testing and attained
interim flight deck certification. Additionally, Bertholf recently conducted towing exercises
with CGC [Coast Guard cutter] Morgenthau, a fueling at sea evolution with USNS [U.S.
naval ship] Kaiser, and testing of the 57mm deck gun and close-in weapon system against
high-speed maneuvering surface targets and unmanned aerial vehicles....

19 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, pp. 21-22.
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We continue to see real progress in the areas of Information Assurance, which includes
TEMPEST, on the NSC. Our technical authority, with support from the Command, Control,
Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) and
NSC project managers, conducted TEMPEST certification inspections prior to preliminary
acceptance of Bertholf in May 2008. Those pre-delivery inspections have contributed to
building a TEMPEST baseline, which will serve as a reference point for all future
TEMPEST-related activities. Using the test-fix-test methodology, we now have resolved all
122 visual TEMPEST discrepancies identified during that pre-acceptance process. We are
conducting additional instrumented TEMPEST surveys using a National Security Agency
(NSA) approved contractor to prepare for final TEMPEST testing, which is scheduled to be
conducted by SPAWAR [the Navy’s Space and Naval Warfare Systems Command] and in
April 2009.
We continue to build on lessons learned and are making some significant improvements to
the Stratton, including construction process efficiencies, enhanced functionality and better
hull design. One of the most notable process improvements is a significant reduction in the
number of grand blocks—multiple units stacked together in large assembly halls away from
the waterfront—used to assemble the ships hull. We used 29 grand blocks to assemble
Bertholf, but expect to use as few as 14 to assemble Stratton. This will enable more sub-
assembly work in each grand block in a controlled environment and potentially lead to fewer
construction hours compared to the process for Bertholf.
Other improvements include an enhanced replenishment at sea station, which incorporates a
redesigned refueling area that will be more efficient and ergonomic for cutter personnel. We
are also improving the gas turbine removal route, which will make it easier to remove and
repair the gas turbine modules that power the cutter. And we have enhanced the hull fatigue
design on Stratton, ensuring she will achieve a 30-year fatigue life.
We are currently working toward production award for the fourth NSC, Hamilton. In line
with accomplished acquisition reforms and our efforts to become the lead systems integrator,
the production award for Hamilton will occur outside the Integrated Coast Guard Systems
(ICGS) LSI construct and include a fixed price contract structure.20
The Coast Guard also testified in April 2009 that:
our reform efforts are facilitating the successful resolution of past and current project
challenges.
One such challenge is the fatigue lifespan of the National Security Cutter—which the Coast
Guard insists be at least 30 years—meaning at least 30 years before the onset of major
repairs due to normal mission use. In 2007, in accordance with the acquisition success
cornerstones and working through our technical authority for engineering and logistics, the
Coast Guard arranged to work with the Navy’s Naval Surface Warfare Center, Carderock
Division to provide independent third party analysis of fatigue design solutions developed by
Coast Guard naval engineers. Using the newest available computer fatigue modeling
software, Carderock reached two main conclusions in its final report, presented to the Coast
Guard earlier this year.

20 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 13-14.
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First, Carderock determined Coast Guard-developed design fatigue enhancements for the
hulls of NSCs three through eight will achieve the desired 30-year fatigue life, while also
recommending monitoring of localized stress in several structural details. Second, the report
identifies major improvements with fatigue life after completing identified modifications to
hulls one and two, but the Carderock transmittal letter recommends more data be gathered
for several areas which are still modeling a less-than 30-year fatigue life.
We agree with Carderock’s assessments. In fact, we have already outfitted CGC Bertholf
with strain gauge sensors to measure actual encountered stresses and collect data to enable
more precise design modeling. Our technical authority is also reviewing each area identified
by Carderock, based on Coast Guard missions and the planned operational profile of the
NSC, and will develop a plan to address those concerns prior to implementing any related
design fix. Plans are to gather data and modify design enhancements over a span of multiple
years, even after NSCs one and two transition to full operations, as the upgrades are
completed over potentially several future yard availabilities. We plan to continue to
collaborate with Carderock to conduct further analysis, including possible re-validation of
changes to the proposed design as a result of the recommendations in their report.
Another persistent challenge is controlling costs in complex, multiple-year projects –
especially those costs driven by economic factors outside the Coast Guard’s control, more
specifically, those types of cost increases recently impacting the National Security Cutter and
Maritime Patrol Aircraft projects. Current economic conditions have seen a steady six-month
decline in the cost of commodities such as nickel, steel and copper. However, when we
award production contracts, our contract price reflects commodity prices at the time of
award.
In the case of the National Security Cutter we are executing production contracts for NSCs
two and three and the long lead time materials contract for NSC four that were priced based
on historically high commodity and fuel prices in effect during the summer of 2008.
Likewise, when current NSC and MPA contracts were awarded, the value of the U.S. dollar
was at a record low when compared to other foreign currencies, meaning all foreign
components necessary for production were more expensive.21
GAO Perspective
The July 2009 GAO report states that the cost of the NSC program was estimated in June 2009 at
$4,749 million in then-year dollars—an increase of $1,299 million, or about 38%, from the 2007
baseline estimate of $3,450 million.22 The report states that the Coast Guard has
made a significant investment in the NSC program before completing operational testing to
demonstrate that the capabilities it is buying meet Coast Guard needs. While some testing of
the NSC has already taken place, the tests conducted to date do not substitute for the
complete scope of operational testing that should be the basis for further investment. For
example, COMOPTEVFOR completed an operational assessment of the NSC in 2007 to

21 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 17-18. See also Calvin Biesecker, “Coast Guard’s NSC Fleet Cost Estimates Rise Due To Labor,
Commodity Issues,” Defense Daily, February 6, 2009: 2-3; Bettina H. Chavanne, “National Security Cutter Hulls
Below Fatigue Life Requirements,” Aerospace Daily & Defense Report, February 10, 2009: 1-2; Rebekah Gordon,
“First Two National Security Cutters Still Face Fatigue-Life Issues,” Inside the Navy, February 9, 2009.
22 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, p. 18.
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identify risks to the program’s successful completion of operational testing. Before the first
NSC was delivered, it also underwent acceptance trials, conducted by the U.S. Navy Board
of Inspection and Survey, to determine compliance with contract requirements and to test
system capabilities. Since delivery of the first NSC, the Coast Guard has also conducted
flight deck and combat system certifications with the assistance of the Navy. While these
demonstrations and certifications provide evidence that the first NSC functions as intended,
they do not fully demonstrate the suitability and effectiveness of the ship for Coast Guard
operations. According to officials, a test plan to demonstrate these capabilities is expected to
be approved in July 2009, and COMOPTEVFOR may begin operational testing in March
2010. However, by the time full operational testing is scheduled to be completed in 2011, the
Coast Guard plans to have six of eight NSCs either built or under contract.23
A June 2008 GAO report stated the following regarding the status of the NSC program:
The NSC’s projected costs have increased greatly compared to the initial baseline.
Requirements changes to address post-9/11 needs are one of the main reasons for the cost
increases. Hurricane Katrina was another contributing factor, but Coast Guard actions also
contributed to the increases, such as the decision to proceed with production before resolving
fatigue life concerns. Fatigue is physical weakening because of age, stress, or vibration. A
U.S. Navy analysis done for the Coast Guard determined that the ship’s design was unlikely
to meet fatigue life expectations. The Coast Guard ultimately decided to correct the structural
deficiencies for the first two National Security Cutters at scheduled points after construction
is completed to avoid stopping the production lines, and to incorporate structural
enhancements into the design and production for future ships. In August 2007, the Coast
Guard and ICGS agreed to a consolidated contracting action to resolve the contractor’s
request for equitable adjustment of $300 million, stemming from ICGS’s contention that the
Coast Guard had deviated from a very detailed contractor implementation plan on which
pricing was based. This negotiation also converted the second NSC from a fixed-price to a
cost plus incentive fee contract.
A Coast Guard official stated that the first NSC is nearing completion with more than 98
percent of the ship constructed and machinery, builders, and acceptance trials have been
completed. Delivery of the ship to the Coast Guard occurred on May 8, 2008; however, the
contractor is still in the process of submitting certifications and resolving issues found in
testing including these with the propulsion system and communications equipment. A Coast
Guard official stated that the second NSC is 50 percent complete and long lead materials and
production contracts have been awarded for the third ship. The Coast Guard plans to award
the production contract for the fourth NSC in fiscal year 2009, with a contract for long lead
materials for that ship planned for the summer of 2008.
A Coast Guard official stated that some issues with the first NSC will remain at delivery,
including issues with classified communications systems. Officials told us that they are in the
process of determining how to most cost effectively address these issues. ICGS will continue
to perform work on the first NSC after it leaves the shipyard, including certain repairs that
fall under the ship’s warranty.24
In March 2008, GAO reported the following regarding the status of the NSC program:

23 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, pp. 14-15.
24 Government Accountability Office, Coast Guard[:] Change in Course Improves Deepwater Management and
Oversight, but Outcome Still Uncertain
, GAO-08-745, June 2008, p. 36.
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Changes to the NSC have had cost, schedule, and performance ramifications.
The estimated costs for the first three ships have generally doubled from the initial projected
costs due to a number of contributing factors, including requirements changes as a result of
September 11, Hurricane Katrina damages, and some program management actions by the
Coast Guard.
Delivery of the ship could be delayed. An aggressive trial schedule leaves little time for
dealing with the unexpected, and most certifications have yet to be completed.
Coast Guard officials expect the ship to meet all performance parameters, but will not know
for certain until the ship undergoes trials. Further, Coast Guard engineers have concerns that
most of the ship’s available weight margin has been consumed during construction, meaning
that subsequent changes to the ship will require additional redesign and engineering to offset
the additional weight.25
The GAO report also stated:
The NSC’s projected costs have increased compared to the initial baseline, as shown in
[GAO Report] Table [No.] 1.
Table 4. [GAO Report Table No. 1]: Cost Growth for NSC 1-3 (Dollars in millions)

NSC 1
NSC 2
NSC 3
Design $67.7


Build 264.4
$200.7
$189.2
Govt. Furnished equipment (GFE)
52.8
50.0
40.0
Initial projected costs (2002)
$384.9
$250.7
$229.2
Requirements changes
75.9
60.0
60.0
Hurricane Katrina
40.0
44.4
38.7
Economic changes
58.3
69.9
86.8
Structural enhancements
40.0
30.0
16.0
Other GFE
41.5
40.7
73.9
Current projected costs (2008)
$640.7
$495.7
$504.6
Source: Coast Guard.
Note: Economic changes include, for example, escalation of material/labor and some costs associated with
settling the REA. Other GFE includes certifications, tests, and training. For NSC 3, other GFE also includes
additional government oversight.
Requirements changes to address post-9/11 needs are one of the main reasons for the cost
increases. The new requirements include
• expanded interoperability with the Department of Defense, DHS, and local first responders;

25 Government Accountability Office, Status of Selected Aspects of the Coast Guard’s Deepwater Program, GAO-08-
270R, March 11, 2008, pp. 2-3.
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• increased self-defense and survivability, including chemical, biological, and radiological
measures;
• increased flight capability via longer and enhanced flight deck;
• upgraded weapon systems; and
• improved classified communication capabilities.
Another contributing factor was Hurricane Katrina, which not only caused considerable
damage to the shipyard, including tooling, equipment, shops, and other facilities, but also
caused an exodus of the experienced workforce. The overall number of shipworkers declined
significantly, causing the contractor to use more overtime hours. The loss of workers, in turn,
considerably disrupted the ship’s learning curve, which normally results in greater
efficiencies in production of subsequent ships.
However, some of the increase can be attributed to Coast Guard actions. For example, the
contractor used the Coast Guard’s failure to precisely execute the contract according to the
implementation plan as basis for requesting an equitable adjustment. Furthermore, even
though the Coast Guard’s own technical staff raised fatigue life concerns—later confirmed
by a U.S. Navy study—during the design phase, the decision was made to proceed with
production of the first two NSCs and enhance the structure later.26
With regard to the delivery schedule for NSC-1, the same GAO report stated:
The first NSC was initially projected for delivery in 2006, but slipped to August 2007 after
the 9/11 requirements changes. However, delivery was again delayed until April 2008. It is
uncertain at this time whether the new delivery date will be met due to several factors
involving testing, certifications, and other areas of technical risk.
Machinery trials occurred in early December and builder’s trials occurred February 8 -11,
2008. The current schedule leaves little margin for delay. Acceptance trials are scheduled to
begin April 7, 2008. The contract requires 30 days between acceptance trials and ship
delivery, but the scheduled dates for these events are about 3 weeks apart. The Coast Guard
and the contractor are aware of the discrepancy; however, no decision has been made on how
to resolve this issue. The Coast Guard will have to either extend the delivery date of the ship
to meet the requirement or waive it. Our prior work has shown that event-driven rather than
schedule-driven decisions are preferable, thus it may be in the best interest of the Coast
Guard to delay acceptance of the first NSC until a number of these issues are resolved.
Of the 987 certification standards, ICGS was to submit documentation on 892 for review and
acceptance by the Coast Guard Technical Authority. Almost all remain outstanding. In
addition, the Coast Guard and contractor differed in their understanding of the number of
certifications for which ABS was responsible. Northrop Grumman had contracted with ABS
to certify 60 standards; however, the Coast Guard believed ABS was responsible for 84.
According to Coast Guard officials, the issue has been resolved and ABS will now be
responsible for 86 certifications. Further, for NSC 3 and later ships, ABS will be responsible
for about 200 certifications. Other third parties will certify 11 of the standards.
The Coast Guard has identified 13 issues pertaining to C4ISR and Hull, Mechanical, and
Electrical as risk areas, 8 of which have moderate to high risk of occurrence or impact if not

26 Ibid, Objective #3 (page 4).
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resolved. One of these relates to the results of the July 2007 visual TEMPEST inspection,
conducted by a team of Coast Guard officials. The team reported hundreds of discrepancies,
over 40 percent of which pertain to cable grounding and separation, such as cables intended
for classified information not being adequately separated from those intended for
nonclassified information. Coast Guard officials told us that they requested the test be done
earlier than usual so that issues could be identified and corrected sooner.
Coast Guard and Navy personnel noted that having open issues with a ship—particularly for
the first in class—at the time of delivery is normal. After acceptance, the Coast Guard plans
to conduct operational testing at sea for approximately 2 years, during which time open
issues can be resolved. The ship will officially become operational thereafter, which, based
on the current schedule, will be March 2010.27
With regard to performance parameters for the NSC, the same GAO report stated:
Key performance parameters for the NSC were first defined in the Acquisition Program
Baseline submitted for DHS approval in November 2006. Coast Guard officials explained
that the key performance parameters were derived from performance specification
requirements that had been in place before contract award....
The key performance parameters have not been changed due to post-9/11 mission
requirements. Coast Guard officials expect the NSC to meet the current threshold
parameters, but they will not know for certain until the ship undergoes sea trials.
However, the Coast Guard’s Engineering Logistics Center officials expressed concern about
the ship’s weight margin. Ship designs typically include a margin for additional weight to
accommodate service enhancements during the ship’s service life. The officials noted that
most of the available weight margin has already been consumed during construction—not
including the fatigue life structural enhancements. The officials further noted that subsequent
changes to the ship will cost more than they would have otherwise due to additional redesign
and engineering that may be necessary to offset the additional weight. Coast Guard officials
noted, however, that a mitigation strategy is in place and adjustments are being made that
will increase the service life weight margin.28
Sentinel Class Fast Response Cutter (FRC)
On March 14, 2007, the Coast Guard announced that it intended to procure the 12 FRC-B cutters,
also known as the Sentinel class, directly from the manufacturer, rather than through ICGS.29 On
June 22, 2007, the Coast Guard issued a Request for Proposals (RFP) for the FRC-B, with
submissions from industry due November 19, 2007. In February 2008, it was reported that the
contract to be awarded by the Coast Guard could be valued at up to $1.7 billion for 34 FRC-Bs, if
all options are executed.30 On September 26, 2008, the Coast Guard announced that it had

27 Ibid, Objective #3 (page 5).
28 Ibid, Objective #3 (page 6).
29 Coast Guard press release, “Coast Guard Reassigns Deepwater Replacement Patrol Boast Acquisition Project,”
March 14, 2007; Calvin Biesecker, “Coast Guard Strips FRC-B Patrol Boat Acquisition From ICGS,” Defense Daily,
March 15, 2007; Renae Merle, “Coast Guard Cancels Contract,” Washington Post, March 15, 2007; and David Stout,
“Coast Guard Cancels Contract For Vessel,” New York Times, March 15, 2007.
30 Andrea Shalal-Esa, “US Cost Guard Sees Patrol Boat Award in May or June,” Reuters, February 11, 2008. See also
Stew Magnuson, “Not So Fast on Fast Response Cutters, Coast Guard Says,” National Defense Magazine, February
2008.
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awarded an $88-million contract to Bollinger Shipyards for the design and construction of the
FRC-B, which the Coast Guard now refers to as the Sentinel class. On October 7, 2008, the
shipbuilding firm Marinette Marine filed a protest with GAO of the Coast Guard’s contract award
to Bollinger.31 On January 12, 2009, GAO denied the protest.32 On February 9, 2009, Marinette
Marine notified the Justice Department of its intent to file a second protest, but on February 17,
2009, it was reported that Marinette had withdrawn the second protest.33
Coast Guard Perspective
As stated earlier, the Coast Guard testified in April 2009 that:
business improvements have led to a number of high profile project successes. Consider the
recent award of the Fast Response Cutter (FRC) Sentinel-class patrol boat. Initially planned
as part of the Deepwater program, to be delivered through Integrated Coast Guard Systems
(ICGS), we took this project back within the Coast Guard to ensure full and open
competition and responsible program management. We have followed our reformed
acquisition processes, conducting a deliberative proposal review and award determination
with integrated participation from technical authorities and the operational community. The
FRC’s proven parentcraft design will minimize cost and schedule risk and mitigate the patrol
boat hour gap in the shortest time possible. Neither ICGS nor the Coast Guard’s pre-
modernized acquisition program could have accomplished this feat as efficiently or
effectively, and I am confident we will build on this record of advances for future
acquisitions programs as well....
The most pointed example of the success of our reformed acquisition processes is Fast
Response Cutter Sentinel-class patrol boat. With a total potential contract value of more than
$1 billion, it was a highly competitive process, and our selection survived two post-award
protests, demonstrating that our robust acquisition process was beyond reproach.
As the yard stick by which to measure the success of our reformed acquisition enterprise, the
Sentinel project provides a number of assurances - all built on the cornerstones for successful
acquisition - for its own and future acquisition management successes, including:
• Establishment and maintenance of a direct Coast Guard relationship with the contractor,
rather than through a separate lead systems integrator;
• Development of detailed technical requirements, and firm adherence to those requirements
throughout the proposal design evaluation process and construction;
• Classification of cutters to established and recognized standards (i.e., American Bureau of
Shipping and High Speed Naval Vessel Rules);
• Use of parent craft designs where applicable, with parent craft designer and builder co-
located on engineering team;
• On-site government staff at production facilities;

31 Rebekah Gordon, “Marinette Marine Files Protest Over Coast Guard’s FRC Award,” Inside the Navy, October 13,
2009.
32 Rebekah Gordon, “GAO Denies Protest of Coast Guard Award to Bollinger for FRC,” Inside the Navy, January 19,
2009.
33 Amy McCullough, “Marinette Withdraws Patrol Boast Protest,” NavyTimes.com, February 17, 2009.
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• Fixed price contract structure;
• Extensive involvement of technical authority throughout acquisition and delivery process;
• Independent validation (i.e., independent cost estimates and design assessments);
• Leveraging Navy and other government partnerships; and,
• Ability to re-compete thru options for data and licensing.
The Sentinel project has become the model for all current and future Coast Guard acquisition
programs.34
The Coast Guard also testified in April 2009 that:
our reform efforts are directly measured in the recent contract award for the critically needed
Fast Response Cutter Sentinel-class patrol boat. Initially planned as part of the Deepwater
program, to be delivered through Integrated Coast Guard Systems, we took this project back
within the Coast Guard to ensure full and open competition and responsible program
management. We have abided strictly to our reformed acquisition processes, conducting a
deliberative proposal review and award determination with integrated participation from
technical authorities and the operational community. Based on the cornerstones for
successful acquisition, this project also adheres to MSAM guidelines, full reporting,
independent assessment and validation, leveraging internal and external partnerships, and
robust departmental oversight.35
GAO Perspective
The July 2009 GAO report on Deepwater acquisition stated:
Based on its determination that the need for the capabilities to be provided by the Fast
Response Cutter and C4ISR is pressing, the Coast Guard has contracted for these capabilities
without having in place all acquisition documentation required by the MSAM. This situation
puts the Coast Guard at risk for cost overruns and schedule slips if it turns out that what it is
buying does not meet its requirements. For example, in September 2008, after conducting a
full and open competition, the Coast Guard awarded an $88.2 million contract to Bollinger
Shipyards, Inc. for the design and construction of a lead Fast Response Cutter. Prior to the
award, however, the Coast Guard did not have an approved operational requirements
document or test plan for this asset as required by the MSAM process. Recognizing the risks
inherent in this approach, the Coast Guard developed a basic requirements document and an
acquisition strategy based on procuring a proven design. These documents were reviewed
and approved by the Coast Guard’s capabilities directorate, the engineering and logistics
directorate, and chief of staff before the procurement began. The Coast Guard’s next
acquisition decision event is scheduled for the first quarter of fiscal year 2010 to obtain DHS
approval for low-rate initial production. According to officials, the Coast Guard intends to
submit an operational requirements document and test plan to DHS for this acquisition

34 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 2-3, 8-9.
35 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, pp. 15-16.
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decision event. With plans to exercise contract options for hulls 2 through 8 in fiscal year
2010, the Coast Guard’s aggressive schedule leaves little room for unforeseen problems.
Program risks are compounded by the fact that the Coast Guard plans to have at least 12
cutters either delivered or under contract prior to the scheduled completion of operational
testing in fiscal year 2012, before it has certainty that what it is buying meets Coast Guard
needs.36
110/123-Foot Patrol Boat Modernization
As an earlier part of the Deepwater program, the Coast Guard initiated an effort to modernize its
existing 110-foot Island class patrol boats, so that they could remain in service pending the
delivery of replacement Deepwater craft. Among other things, the modernization increased the
length of the boats to 123 feet. The effort is thus referred to variously as the 110-foot
modernization program, the 123-foot modernization program, or the 110/123-foot modernization
program.
The initial eight boats in the program began to develop significant structural problems soon after
completing their modernizations. The Coast Guard removed the boats from service and canceled
the program, having spent close to $100 million on it. On May 17, 2007, the Coast Guard issued a
letter to ICGS revoking its previous acceptance of the eight modernized boats—an action
intended to facilitate Coast Guard attempts to recover from ICGS funds that were spent on the
eight converted boats.37 On January 7 and 8, 2008, it was reported that the Coast Guard was
seeking a repayment of $96.1 million from ICGS for the patrol boats and had sent a letter to
ICGS on December 28, 2007, inviting ICGS to a negotiation for a settlement of the issue.38 Some
observers questioned the strength of the government’s legal case, and thus its prospects for
recovering the $96.1 million or some figure close to that.39
The Coast Guard testified in April 2009 that:
With regard to the 123-foot patrol boats, the Department of Justice and the DHS-OIG [the
DHS Office of the Inspector General] continue their investigation into the project. The qui
tam [legal] action involving the patrol boats is still on-going. The Department of Justice has
not yet made yet made a determination whether it will intervene in that action. The Coast
Guard continues its support of the DOJ and DHS-OIG investigation.
Simultaneous to our support of the DOJ investigation, we have also undertaken an
independent engineering analysis through the Navy’s Naval Sea Systems Command, which
we expect to be completed sometime this summer. Additionally, we are working with the

36 Government Accountability Office, Coast Guard[:]As Deepwater Systems Integrator, Coast Guard Is Reassessing
Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach
, GAO-09-682, July 2009, p. 15.
37 Dan Caterinicchia, “Coast Guard Wants Refund For Ships,” Associated Press, May 17, 2007; Renae Merle, “Coast
Guard Seeks Deepwater Refund,” Washington Post, May 18, 2007: D3.
38 See Andrea Shalal-Esa, “Lockheed, Northrop Asked To Pay $96 Mln For Bad Boats,” Reuters, January 7, 2008;
Geoff Fein, “Coast Guard Invites ICGS To Negotiate A Settlement Over 123-Foot Boat Issue,” Defense Daily, January
8, 2008; Dan Caterinicchia, “Gov’t Wants $96M Refund For Faulty Ships,” Business Week, January 8, 2008. See also
Emelie Rutherford, “Coast Guard Wants $96 Million From Deepwater Team For Bad Ships,” Inside the Navy, January
14, 2008.
39 See, for example, Geoff Fein, “Coast Guard Invites ICGS To Negotiate A Settlement Over 123-Foot Boat Issue,”
Defense Daily, January 8, 2008. See also Geoff Fein, “Rep. Taylor Chides Coast Guard Over Effort To Recoup Cutter
Conversion Funds,” Defense Daily, February 27, 2008.
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Department of Justice to release five of the eight patrol boats to salvage systems, equipment
and parts still of value to the Coast Guard. The remaining three cutters would remain
untouched for evidence purposes in support of the ongoing investigations.40
Revolving Door and Potential for Conflicts of Interest
The so-called revolving door, which refers to the movement of officials between positions in
government and industry, can create benefits for government and industry in terms of allowing
each side to understand the other’s needs and concerns, and in terms of spreading best practices
from one sector to the other. At the same time, some observers have long been concerned that the
revolving door might create conflicts of interest for officials carrying out their duties while in
government positions. A March 25, 2007, news article stated in part:
Four of the seven top U.S. Coast Guard officers who retired since 1998 took positions with
private firms involved in the Coast Guard’s troubled $24 billion fleet replacement program,
an effort that government investigators have criticized for putting contractors’ interests ahead
of taxpayers’.
They weren’t the only officials to oversee one of the federal government’s most complex
experiments at privatization, known as Deepwater, who had past or subsequent business ties
to the contract consortium led by industry giants Northrop Grumman and Lockheed Martin.
The secretary of transportation, Norman Y. Mineta, whose department included the Coast
Guard when the contract was awarded in 2002, was a former Lockheed executive. Two
deputy secretaries of the Department of Homeland Security, which the Coast Guard became
part of in 2003, were former Lockheed executives, and a third later served on its board.
Washington’s revolving-door laws have long allowed officials from industry giants such as
Lockheed, the nation’s largest defense contractor, to spend parts of their careers working for
U.S. security agencies that make huge purchases from those companies, though there are
limits.
But Deepwater dramatizes a new concern, current and former U.S. officials said: how
dwindling competition in the private sector, mushrooming federal defense spending and the
government’s diminished contract management skills raise the stakes for potential conflicts
of interest.
Deepwater also illustrates how federal ethics rules carve out loopholes for senior
policymakers to oversee decisions that may benefit former or prospective employers. These
include outsourcing strategies under which taxpayers bear most of the risks for failure,
analysts said.
There is no sign that any of the retired admirals or former Lockheed officials did anything
illegal.

40 Statement of Admiral Thad W. Allen, Commandant [of the Coast Guard], on the Coast Guard and Acquisitions
before the Committee on Appropriations Subcommittee on Homeland Security, U.S. House of Representatives, 22
April 2009, p. 18. See also Bettina H. Chavanne, “Lawmakers Still Pressing USCG On Patrol Boat Conversion,”
Aerospace Daily & Defense Report, March 25, 2009: 3.
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But the connections between the agencies and the contractors have drawn the attention of the
DHS inspector general, Richard L. Skinner. “That is on our radar screen,” he said. “It’s
something we are very sensitive to.”41
Potential Options for Congress
In addition to approving or modifying the Coast Guard’s requests for FY2010 acquisition funding
Deepwater programs, potential options for Congress regarding the Deepwater program include
but are not limited to the following:
• continue to track the Coast Guard’s management and execution of Deepwater
acquisition programs, including implementation of reform actions announced by
the Coast Guard itself or recommended by GAO;
• modify reporting requirements for Deepwater acquisition programs;
• prohibit the obligation or expenditure of some or all FY2010 funding for
Deepwater acquisition programs until the Coast Guard or DHS takes certain
actions or makes certain certifications regarding the Deepwater program; and
• pass legislation to codify acquisition reforms for Deepwater programs that the
Coast Guard has already announced, or to change acquisition policies and
practices for Deepwater acquisition programs in other ways.
Legislative Activity for FY2010
Summary of Action on FY2010 Deepwater AC&I Funding Request
Table 5 summarizes action on the FY2010 request in the Coast Guard’s Acquisition, Construction
and Improvements (AC&I) account for funding for Deepwater acquisition programs.
Table 5. Action on FY2010 Deepwater Acquisition Funding Request
(in millions of dollars, rounded to nearest tenth)
Appropriations
Program Request
HAC
SAC
conference
Maritime Patrol Aircraft (MPA)
175.0
138.5
175.0

HH-60 Conversion Projects
45.9
45.9
45.9

HH-65 Conversion/Sustainment Projects
38.0
38.0
38.0

HC-130H Conversion/Sustainment
45.3 45.3 45.3

Projects
HC-130J Fleet Introduction
1.3
1.3
1.3

Subtotal aircraft
305.5
269.0
305.5


41 Spencer S. Hsu and Renae Merle, “Coast Guard’s Purchasing Raises Conflict-Of-Interest Flags,” Washington Post,
March 25, 2007.
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Appropriations
Program Request
HAC
SAC
conference
National Security Cutter (NSC)
281.5
281.5
389.5

Offshore Patrol Cutter (OPC)
9.8
9.8
9.8

Fast Response Cutter (FRC)
243.0
243.0
243.0

Deepwater smal boats
3.0
3.0
3.0

High-endurance cutter sustainment
0
0
8.0

Medium-endurance cutter sustainment
31.1
31.1
31.1

Patrol boats sustainment
23.0
23.0
23.0

Polar icebreaker sustainment
0
0
27.3

Subtotal surface ships
591.4
591.4
734.7

Government program management
45.0
45.0
45.0

Systems engineering and integration
35.0
35.0
35.0

C4ISRa 35.0
35.0
35.0

Logistics 37.7
37.7
37.7

Technology obsolescence prevention
1.9
1.9
1.9

Subtotal other
154.6
154.6
154.6

TOTAL 1,051.5
1,015.0
1,194.8

Source: H.Rept. 111-157 of June 16, 2009, on H.R. 2892 (page 81), and S.Rept. 111-31 of June 18, 2009 on S.
1298 (pages 75-76).
a. Command and control, communications, computers, intelligence, surveillance and reconnaissance.
FY2010 DHS Appropriations Bill (H.R. 2892/S. 1298)
House
In addition to the funding recommendations noted in Table 5, the House Appropriations
Committee’s report (H.Rept. 111-157 of June 16, 2009) stated the following regarding Deepwater
acquisition programs:
QUARTERLY REPORTS ON ACQUISITION PROJECTS AND MISSION
EMPHASIS
The Committee continues to find Coast Guard’s quarterly acquisition reports and mission
emphasis reports extremely useful, and as such, directs Coast Guard to continue submitting
these comprehensive reports in a timely fashion. The Coast Guard is directed to continue to
include in the acquisition reports information on small boat purchases and leases made
within the Operating Expenses appropriation.
STATUTORY REPORTING REQUIREMENTS
The Committee is frustrated that the Coast Guard failed to provide several reports required in
law that were to accompany the 2010 budget request. Specifically, P.L. 110–329 requires the
Coast Guard to submit a Deepwater expenditure plan and a capital investment plan, yet
neither was received. While these are not simple documents, these are not new requests. The
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Coast Guard has been required to submit a capital investment plan every year since the
agency moved to DHS. Similarly, the Coast Guard has been required to submit an annual
expenditure plan using the fiscal year 2006 revised Deepwater Implementation Plan as the
base document since fiscal year 2007. These reports are critical because they provide the
Committee with needed data to assess the effectiveness of one of the country’s largest annual
investments in homeland security. The explanation provided in the budget justification for
the lack of data from a Capital Investment Plan is wholly inadequate in satisfying the
requirement. Although the Committee had chosen not to carry a withholding provision in the
bill this year out of consideration for possible dislocations in the reporting process due to the
transition of administrations, these documents should be provided to the Committee
immediately, or there is little question that the question of withholdings will be revisited.
DEEPWATER
The Committee recommends $1,014,980,000 for Deepwater, $36,500,000 below the amount
requested and $19,014,000 below the amount provided in fiscal year 2009.
MARITIME PATROL AIRCRAFT
The Maritime Patrol Aircraft (MPA) serves as the Coast Guard’s lead fixed-wing extended
surveillance and quick response platform. The Committee recommends $138,500,000 for
two additional MPAs, mission pallets, spares, and logistics support as requested. The
Committee does not include $36,500,000 requested for accelerating the purchase of a MPA
flight simulator ahead of its original schedule.
MARITIME SURVEILLANCE
The Committee has consistently voiced its concerns over the gap between the Coast Guard’s
stated mission hour needs for maritime surveillance and available resource hours of
surveillance assets. These concerns are based upon the Coast Guard’s quantitative analysis of
mission requirements and repeated testimony by operational personnel and security experts
on the need for increased maritime surveillance capabilities, especially in the source and
transit zones of the eastern Pacific Ocean and the Caribbean basin. The Committee is pleased
the fiscal year 2010 budget request partially addresses this issue through funding for aircraft
acquisition, conversion and sustainment. However, the Committee is concerned by the
absence of requested funding to support operational testing and evaluation of either land-
based or cutter-based unmanned aerial systems (UAS) in fiscal year 2010 given the
unrealized potential of such assets for enhanced maritime surveillance. Furthermore, the
Committee notes that even with these additional surveillance resources requested for fiscal
year 2010, the Coast Guard’s available maritime surveillance hours will only be at
approximately 65 percent of stated mission needs. The Coast Guard is directed to report to
the Committee no later than November 1, 2009, on its planned efforts to leverage available
interagency resources and other temporary surveillance capabilities, including the
operational testing and evaluation of UAS, in fiscal year 2010 to address the maritime
surveillance mission hour gap.
NATIONAL SECURITY CUTTER
The National Security Cutter (NSC) is the replacement for the 378-foot High Endurance
Cutter, and as such, is capable of worldwide operations, extended on-scene presence, long
transit and forward deployments. The Committee recommends $281,480,000 for the NSC as
requested, $72,220,000 below the amount provided in fiscal year 2009. The Committee does
this despite persistent concerns regarding cost controls and the production schedule for this
class of cutter. These concerns are predicated on the fact that the cost of the fourth NSC is
more than $73,700,000 and fourteen percent higher than the previous two cutters in this class
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and that the Coast Guard’s current schedule delays the award for the fifth NSC until 2011.
The Committee is troubled by a projected production schedule for the remaining NSCs that
delays fulfillment of known operational needs and appears to enable further cost growth and
delays in cutter delivery. These concerns are exacerbated by the absence of requested
funding for known, immediate maintenance needs of the legacy high endurance cutters
(HECs) in fiscal year 2010. The Committee views the confluence of the NSC’s extended
production schedule with the uncertain long-term availability of the legacy HEC fleet as a
detriment to offshore maritime security operations and directs the Coast Guard to: prioritize
maintenance needs of the HEC fleet, as addressed elsewhere in this report, and inform the
Committee no later than July 1, 2009, of its efforts to put in place a contractual structure for
the remaining NSCs that will provide expeditious delivery at the least cost and risk to the
taxpayer.
OFFSHORE PATROL CUTTER
The Offshore Patrol Cutter (OPC) is the replacement vessel for the current 210-foot and 270-
foot Medium Endurance cutters. The Committee provides the requested $9,800,000 to
complete alternatives analysis and required acquisition documentation for the OPC, as well
as beginning Phase I of preliminary design. The Committee understands from the Coast
Guard that this approach will help reduce the risk of program cost growth. Given that such
cost growth was behind the decision to stop work on the initial OPC, the Coast Guard is
directed to brief the Committee on the result of the requirements analysis prior to initiating
Phase I work on the new OPC.
FAST RESPONSE CUTTER
The Fast Response Cutter (FRC) is the more capable replacement for the Coast Guard’s
legacy 110-foot patrol boats. The Committee provides the requested $243,000,000 for full-
rate production of four FRCs, $127,700,000 above the amount provided in fiscal year 2009.
The Coast Guard is expected to take delivery of the first FRC in fiscal year 2010. The
Committee directs the Coast Guard to include in its quarterly briefings to the Committee on
the FRC’s progress information on the effectiveness of its various efforts to control cost
growth.
LEGACY CUTTER SUSTAINMENT
The Committee continues to be concerned about legacy cutter sustainment as new vessels are
being slowly brought into service. The Committee understands that the funding level in the
request for cutter sustainment allows for these programs to continue on schedule, with the
shipyards working at optimal capacity. The Committee is pleased by the increases in vessel
availability resulting from the sustainment programs in place for patrol boats and Medium-
Endurance Cutters. Coast Guard reporting indicates that the Medium Endurance Cutter
Sustainment Program has increased the fully-capable mission availability of 270-foot cutters
by 62 percent, and 210-foot cutters by 75 percent. Also, the Committee notes that attention to
critical maintenance needs in the 378-foot High Endurance Cutter fleet has resulted in more
marginal improvements in availability, and urges the Coast Guard to move ahead on a more
robust sustainment option for the High Endurance Cutter.
DEEPWATER REVIEW AND CAPITAL INVESTMENT PLAN
The Committee notes that neither the Secretary’s review of the Revised Deepwater
Implementation Plan nor the future-years capital investment plan mandated in P.L. 110–329
were provided with the budget request. The Committee strongly urges the Department to
produce those items expeditiously, and make sure that similar mandates carried in this
legislation are met. (Pages 81-84)
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Senate
In addition to the funding recommendations noted in Table 5, the Senate Appropriations
Committee’s report (S.Rept. 111-31 of June 18, 2009) on S. 1298 stated the following regarding
Deepwater acquisition programs:
DEEPWATER FUNDING
The Committee recommends $1,194,780,000 for Deepwater, $143,300,000 above the
amount requested and $160,786,000 above the fiscal year 2009 level. Details of major
procurements under this program and changes to the request are provided below.
MARITIME PATROL AIRCRAFT
The Committee recommends $175,000,000 for the Maritime Patrol Aircraft [MPA], the same
level as proposed in the budget request. This funding will allow the Coast Guard to acquire 2
aircraft (13 and 14), mission systems, and a flight simulator. The funds will address the
Coast Guard’s MPA flight-hour gap by providing 2,400 additional MPA hours every year.
NATIONAL SECURITY CUTTER
The recommendation includes $389,480,000 for the National Security Cutter [NSC]
acquisition, $108,000,000 above the budget request. The Committee disagrees with the
administration’s decision to delay funding for the 5th NSC. The NSC program, which is
already 2 years behind schedule, will be further delayed without additional funds. The 12
legacy cutters the NSC will replace are frequently out of service due to unscheduled
maintenance requirements. These 12 cutters lose an average of 250 operational days per year
due to unplanned maintenance, which is directly impacting the Coast Guard’s ability to
perform its many missions. Funds are provided to complete production of NSC #4 and for
long-lead time materials for NSC #5, which ensures the Coast Guard is properly positioned
to negotiate a best-value, fixed-price contract for NSC #4 and avoids additional project costs
and recapitalization delays associated with a break in NSC production.
The Committee strongly supports the procurement of one National Security Cutter per year
until all eight planned ships are procured. The continuation of production without a break
will ensure that these ships, which are vital to the Coast Guard’s mission, are procured at the
lowest cost, and that they enter the Coast Guard fleet as soon as possible.
FAST RESPONSE CUTTER
The Committee recommends $243,000,000 for the Coast Guard’s ‘‘Fast Response Cutter’’
[FRC–B], the same level as proposed in the budget request. This funding will allow the
Coast Guard to acquire four FRC–B hulls (5–8). The first FRC–B is scheduled for delivery
in the third quarter of fiscal year 2011 and will be fully operational in fiscal year 2012. The
Committee expects the Coast Guard to continue quarterly briefings on the status of this
procurement, including critical decision points and dates, planned service life extensions of
the existing 110-foot patrol boats, and patrol boat operational metrics.
MISSION EFFECTIVENESS PROJECT
The recommendation includes $54,100,000 for the Mission Effectiveness Project, the same
level as proposed in the budget request. Of this amount, $31,100,000 is for sustainment of
three 270-foot and two 210-foot medium endurance cutters, and $23,000,000 is for
sustainment of three 110-foot legacy patrol boats. This funding is intended to improve
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mission effectiveness of these vessels to allow them to meet their goals for program
availability through the remainder of their service lives. This program has been successful in
significantly reducing the number of major equipment casualties on these vessels resulting in
a much higher percentage of time they are fully mission capable.
OFFSHORE PATROL CUTTER
The recommendation includes $9,800,000 for the Offshore Patrol Cutter [OPC], the same
level as proposed in the budget request. The Committee directs the Coast Guard to brief the
Committee by April 30, 2010, on the results of the alternatives analysis for the OPC....
POLAR ICEBREAKER SUSTAINMENT
The Committee recommends $32,500,000 above the budget request to complete the
reactivation and service life extension of Coast Guard Cutter Polar Star. Of this amount,
$5,200,000 is funded in the AC&I direct personnel costs PPA. Returning Polar Star to
operational status is vital to ensuring the U.S. Government has the ability to project U.S.
sovereignty and protect the broad range of security, economic, and environmental interests in
the Arctic and Antarctic. Within this amount, the Coast Guard shall begin survey and design
and conduct a business case analysis for either a new heavy polar icebreaker class or a major
service life extension project for existing heavy icebreakers. The only existing heavy polar
class icebreaker, the Polar Sea, has only 7 years remaining in its useful life....
HIGH ENDURANCE CUTTER SUSTAINMENT
Delays in the planned delivery of National Security Cutters have created a sustainment
problem for the Coast Guard in maintaining its fleet of legacy High Endurance Cutters. The
Committee is aware of efforts to assess the need and scope for a maintenance plan for the
378-foot High Endurance Cutter fleet. The Committee includes $8,000,000 above the request
for pre-acquisition survey and design to determine the requirements for a maintenance
effectiveness project. A similar program for the Medium Endurance Cutter fleet has been
highly successful in increasing its fully-capable mission availability. The Coast Guard shall
brief the Committee no later than 60 days after the date of enactment of this act on
preliminary plans for this effort.
AC&I PERSONNEL
The Committee provides $105,200,000 for personnel and related support, $5,200,000 above
the budget request. These additional FTEs are necessary for the Coast Guard to perform the
systems integrator role for the Deepwater Program and to execute traditional acquisition
projects. This amount also includes personnel related costs to reactivate the Polar Star.
The Committee is well aware of the limited pool of certified and experienced acquisition
professionals. Therefore, the Committee encourages the Coast Guard to work with the
appropriate authorizing committees to ensure that its hiring authorities are on par with those
of the other armed services.
According to recent testimony by the Government Accountability Office, “there are
approximately 200 contractor employees in support of the acquisition directorate—
representing 24 percent of its total acquisition workforce.” Some of these contractors are
performing core Government acquisition functions. The Coast Guard shall brief the
Committee no later than 60 days after the date of enactment of this act on efforts to reduce
reliance on contractors performing inherently governmental work....

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DEEPWATER EXPENDITURE PLAN
The Coast Guard is directed to brief the Committee on its fiscal year 2010 deepwater
expenditure plan not later than 60 days after the date of enactment of this act. The briefing
shall be consistent with the Deepwater expenditure plan requirements set forth in Public Law
110–329.
QUARTERLY ACQUISITION REPORTS
The Commandant is directed to continue to submit quarterly acquisition and mission
emphasis reports consistent with deadlines articulated under section 360 of division I of
Public Law 108–7 and the fiscal year 2008 joint explanatory statement. The Committee notes
that the Coast Guard has adopted the practice of comparing cost, schedule, and performance
estimates against the most recently approved baseline. This approach provides an incomplete
assessment of an acquisition’s progress against the original baseline. Therefore, the report
shall compare current estimates against the original baseline and the most recent baseline, if
available. This method is consistent with Department of Defense acquisition reporting policy
and is recommended by the Government Accountability Office. When reporting on “key
project documents,” it should be noted if approved documentation differs from that required
by the Major Systems Acquisition Manual or the Department’s Acquisition Review
guidance. The reports should also indicate if a test and evaluation master plan has been
approved for an asset. Finally, the acquisition reports shall include a “stoplight chart” that
tracks key performance parameters of each asset through developmental and operational
testing. Because the Coast Guard consistently fails to meet quarterly submission deadlines,
the Committee withholds $30,000,000 from Headquarter Directorates until the second
quarter report is submitted.
GAO DEEPWATER REVIEW
The GAO is directed to continue its oversight of the Deepwater program. GAO’s focus shall
include an assessment of the Coast Guard’s conversion projects for the HH–60 and HH–65
platforms. The Committee is concerned with the schedule for both programs. According to
the Coast Guard’s quarterly acquisition reports, the schedule for the HH–60 program is at
“significant risk” and is not expected to meet projected milestones. The same reports show a
moderate schedule risk for the HH–65 conversion program. Delays in the HH–65 conversion
program have resulted in an unobligated balance in excess of $100,000,000 and the Coast
Guard expects to carryover $58,729,000 into fiscal year 2010. (Pages 77-80)
Bills Reforming Coast Guard Acquisition (H.R. 1665, H.R. 3619, and
S. 1194)

The Coast Guard Acquisition Reform Act of 2009 (H.R. 1665), the FY2010 Coast Guard
authorization bill (H.R. 3619), and the FY2010 and FY2011 Coast Guard authorization bill (S.
1194) contain provisions that would reform Coast Guard acquisition, including Deepwater
acquisition programs. Among other things, these provisions would prohibit the use of lead system
integrators for Coast Guard acquisition programs after a certain date, with certain exceptions,
including the second and third National Security Cutters and (for S. 1194) Deepwater C4ISR
programs. Other provisions, particularly in H.R. 1665 and H.R. 3619, relate to acquisition of
National Security Cutters. Section 1116 of H.R. 3619 would require an assessment of needs for
additional Coast Guard presence in high-latitude regions that is to include, among other things, an
assessment of the high-latitude operating capabilities of all current Coast Guard assets, including
assets acquired under the Deepwater program.
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Appendix A. Criticism of Deepwater Management
in 2007

Overall Management of Program
Many observers in 2007 believed the problems experienced in the three Deepwater cutter
acquisition efforts were the product of broader problems in the Coast Guard’s overall
management of the Deepwater program. Reports and testimony in 2007 and prior years from the
DHS IG and GAO, as well as a February 2007 DAU “quick look study” requested by the Coast
Guard42 expressed serious concerns about the Coast Guard’s overall management of the
Deepwater program.
Some observers expressed the view that using a private-sector LSI to implement the Deepwater
program made a complex program more complex, and set the stage for waste, fraud, and abuse by
effectively outsourcing oversight of the program to the private sector and by creating a conflict of
interest for the private sector in executing the program. Other observers, including GAO and the
DAU, expressed the view that using a private-sector LSI is a basically valid approach, but that the
contract the Coast Guard used to implement the approach for the Deepwater program was flawed
in various ways, undermining the Coast Guard’s ability to assess contractor performance, control
costs, ensure accountability, and conduct general oversight of the program.
Observers raised various issues about the Deepwater contract. Among other things, they
expressed concern that the contract was an indefinite delivery, indefinite quantity (ID/IQ)
contract, which, they said, can be an inappropriate kind of contract for a program like the
Deepwater program. Observers also expressed concern that the contract
• transferred too much authority to the private-sector LSI for defining performance
specifications, for subsequently modifying them, and for making technical
judgements;
• permitted the private-sector LSI to certify that certain performance goals had
been met—so-called self-certification, which, critics argue, can equate to no
meaningful certification;
• provided the Coast Guard with insufficient authority over the private-sector LSI
for resolving technical disputes between the Coast Guard and the private-sector
LSI;
• was vaguely worded with regard to certain operational requirements and
technical specifications, reducing the Coast Guard’s ability to assess performance
and ensure that the program would achieve Coast Guard goals;
• permitted the firms making up the private-sector LSI to make little use of
competition between suppliers in selecting products to be used in the Deepwater
program, to tailor requirements to fit their own products, and consequently to rely
too much on their own products, as opposed to products available from other
manufacturers;

42 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater Program, February 2007.
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• permitted the private-sector LSI’s performance during the first five-year period to
be scored in a way that did not sufficiently take into account recent problems in
the cutter acquisition efforts;
• permitted award fees and incentive fees (i.e., bonuses) to be paid to the private-
sector LSI on the basis of “attitude and effort” rather than successful outcomes;
and
• lacked sufficient penalties and exit clauses.
Observers also expressed concern that the Coast Guard did not have enough in-house staff and in-
house expertise in areas such as program management, financial management, and system
integration to properly oversee and manage an acquisition effort as large and complex as the
Deepwater program, and that the Coast Guard did not make sufficient use of the Navy or other
third-party, independent sources of technical expertise, advice, and assessments. They also
expressed concern that the Coast Guard, in implementing the Deepwater program, placed a higher
priority on meeting a schedule as opposed to ensuring performance.
In response to criticisms of the management and execution of the Deepwater program, Coast
Guard and industry officials acknowledged certain problems in the program’s management and
execution and defended the program’s management execution in other respects.43
National Security Cutter (NSC)
A DHS IG report released in January 2007 strongly criticized the NSC program, citing design
flaws in the ship and the Coast Guard’s decision to start construction of NSCs in spite of early
internal notifications about these flaws. The design flaws involved, among other things, areas in
the hull with insufficient fatigue life—that is, with insufficient strength to withstand the stresses
of at-sea operations for a full 30-year service life. The DHS IG report also noted considerable
growth in the cost to build the first two NSCs, and other issues.44
Observers in 2007 stated that the Coast Guard failed to report problems about the NSC effort to
Congress on a timely basis, resisted efforts by the DHS IG to investigate the NSC effort, and
appeared to have altered briefing slides on the NSC effort so as to downplay the design flaws to
certain audiences. On May 17, 2007, the DHS IG testified that the Coast Guard’s cooperation
with the DHS IG had substantially improved (though some issues remained), but that Deepwater

43 For examples of Coast Guard testimony, see Department of Homeland Security, U.S. Coast Guard, Statement of
Admiral Thad W. Allen, Commandant, on Deepwater: 120-Days Later, Before the Subcommittee on Coast Guard &
Maritime Transportation, Committee on Transportation & Infrastructure, U.S. House of Representatives, June 12,
2007; and Department of Homeland Security, U.S. Coast Guard, Statement of Rear Admiral Gary T. Blore and Captain
Steven Baynes on Deepwater: Charting a Course For Safer Waters, Before the Committee on Homeland Security, U.S.
House of Representatives, Subcommittees on Management, Investigations, and Oversight and Border, Maritime and
Global Counterterrorism, May 17, 2007.
For examples of industry testimony, see Statement for the Record, Mr. James E. Anton, Vice President Deepwater
Program, Northrop Grumman Ship Systems (NGSS), Testimony Before: The House Maritime and Global Counter-
Terrorism Subcommittee And The House Management, Investigations and Oversight Subcommittee, May 17, 2007;
and Testimony of Fred P. Moosally, President, Lockheed Martin Maritime Systems and Sensors, to The House
Committee on Homeland Security Subcommittee on Border, Maritime and Global Counterterrorism, May 17, 2007.
44 Department of Homeland Security, Office of Inspector General, Acquisition of the National Security Cutter, OIG -
07-23, January 2007. The report is available online at http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-23_Jan07.pdf.
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contractors had establishing unacceptable conditions for DHS IG to interview contractor
personnel about the program.
110-Foot Patrol Boat Modernization
The Coast Guard originally planned to modernize and lengthen its 49 existing Island-class 110-
foot patrol boats so as to improve their capabilities and extend their lives until their planned
eventual replacement with FRCs starting in 2018. The work lengthened the boats to 123 feet. The
program consequently is referred to as the 110-foot or 123-foot or 110/123 modernization
program.
Eight of the boats were modernized at a total cost of about $96 million. The first of the eight
modernized boats was delivered in March 2004. Structural problems were soon discovered in
them. In June 2005, the Coast Guard stopped the modernization effort at eight boats after
determining that they lacked capabilities needed for meeting post-9/11 Coast Guard operational
requirements.
In August 2006, a former Lockheed engineer posted on the Internet a video alleging four other
problems with the 110-foot patrol boat modernization effort.45 The engineer had previously
presented these problems to the DHS IG, and a February 2007 report from the DHS IG confirmed
two of the four problems.46
On November 30, 2006, the Coast Guard announced that it was suspending operations of the
eight modernized boats (which were assigned to Coast Guard Sector Key West, FL) because of
the discovery of additional structural damage to their hulls. The suspension prompted expressions
of concern that the action could reduce the Coast Guard’s border-enforcement capabilities in the
Caribbean. The Coast Guard said it was exploring options for addressing operational gaps
resulting from the decision.47
On April 17, 2007, the Coast Guard announced that it would permanently decommission the eight
converted boats and strip them of equipment and components that might be reused on other Coast
Guard platforms.48 The Coast Guard acknowledged in 2007 that the program was a failure.

45 Patricia Kime, “Video Alleges Security Problems With Converted U.S. Coast Guard Cutters,” DefenseNews.com,
August 7, 2006. See also Griff Witte, “On YouTube, Charges Of Security Flaws,” Washington Post, August 29, 2006.
The video is posted on the Internet at http://www.youtube.com/watch?v=qd3VV8Za04g.
46 Department of Homeland Security, Office of Inspector General, 110’/123’ Maritime Patrol Boat Modernization
Project
, OIG -07-27, January 2007. The report is available online at http://www.dhs.gov/xoig/assets/mgmtrpts/
OIG_07-27_Feb07.pdf.
47 “Coast Guard Statement on Suspension of Converted Patrol Boat Operations,” InsideDefense.com, November 30,
2006; Patricia Kime, “U.S. Coast Guard Pulls 123s Out of Service,” DefenseNews.com, November 30, 2006; Calvin
Biesecker, “Coast Guard Suspends 123-Foot Patrol Boat Operations,” DefenseDaily, December 1, 2006; Robert Block,
“Coast Guard Fleet Cuts Could Hurt Border Patrols,” Wall Street Journal, December 1, 2006; Renae Merle, “Coast
Guard Finds Flaws In Converted Patrol Boats,” Washington Post, December 2, 2006; Renae Merle and Spencer S. Hsu,
“Costly Fleet Update Falters,” Washington Post, December 8, 2006.
48 Coast Guard Press Release dated April 17, 2007, entitled “Statement by Adm. Thad Allen on the Converted 123-Foot
Patrol Boats and Changes to the Deepwater Acquisition Program.” See also Geoff Fein, “Coast Guard Nixes 123-Foot
Patrol Boat, Assumes Lead of Deepwater Effort,” Defense Daily, April 18, 2007; Patricia Kime, “Coast Guard To
Decommission Troubled 123s,” NavyTimes.com, April 18, 2007.
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Fast Response Cutter (FRC)
As a result of the problems in the 110-foot patrol boat modernization project, the Coast Guard
accelerated the FRC design and construction effort by 10 years. Problems, however, were
discovered in the FRC design. The Coast Guard suspended work on the design in February 2006,
and then divided the FRC effort into two classes—the FRC-Bs, which are to be procured in the
near term, using an existing patrol boat design (which the Coast Guard calls a “parent craft”
design), and the subsequent FRC-As, which are to be based on a fixed version of the new FRC
design.
As mentioned earlier, although the November 2006 Deepwater APB calls for 12 FRCs and 46
FRC-Bs, the Coast Guard’s Request for Proposals (RFP) for the FRC-B program includes options
for building up to 34 FRC-Bs (which, if exercised, would reduce the number of FRC-As to as few
as 24). The Coast Guard has also stated that if the FRC-Bs fully meet the requirements for the
FRC, all 58 of the FRCs might be built to the FRC-B design.
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Appendix B. Coast Guard Reform Actions in 2007
Actions Announced in April 2007
On April 17, 2007, the Coast Guard announced six changes intended to reform management of
the Deepwater program. In announcing the actions, Admiral Thad Allen, the Commandant of the
Coast Guard, stated in part:
Working together with industry, the Coast Guard will make the following six [6]
fundamental changes in the management of our Deepwater program:
[1] The Coast Guard will assume the lead role as systems integrator for all Coast Guard
Deepwater assets, as well as other major acquisitions as appropriate....
[2] The Coast Guard will take full responsibility for leading the management of all life cycle
logistics functions within the Deepwater program under a an improved logistics architecture
established with the new mission support organization.
[3] The Coast Guard will expand the role of the American Bureau of Shipping, or other
third-parties as appropriate, for Deepwater vessels to increase assurances that Deepwater
assets are properly designed and constructed in accordance with established standards.
[4] The Coast Guard will work collaboratively with Integrated Coast Guard Systems to
identify and implement an expeditious resolution to all outstanding issues regarding the
national security cutters.
[5] The Coast Guard will consider placing contract responsibilities for continued production
of an asset class on a case-by-case basis directly with the prime vendor consistent with
competition requirements if: (1) deemed to be in the best interest of the government and (2)
only after we verify lead asset performance with established mission requirements.
[6] Finally, I will meet no less than quarterly with my counterparts from industry until any
and all Deepwater program issues are fully adjudicated and resolved. Our next meeting is to
be scheduled within a month.
These improvements in program management and oversight going forward will change the
course of Deepwater.
By redefining our roles and responsibilities, redefining our relationships with our industry
partners, and redefining how we assess the success of government and industry management
and performance, the Deepwater program of tomorrow will be fundamentally better than the
Deepwater program of today....
As many of you know, I have directed a number of significant organizational changes [to the
Coast Guard], embedded within direction and orders, to better prepare the Coast Guard to
meet and sustain mission performance long into the future as we confront a broad range of
converging threats and challenges to the safety, security and stewardship of America’s vital
maritime interests.
What’s important to understand here is that these proposed changes in organizational
structure, alignment and business processes, intended to make the Coast Guard more
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adaptive, responsive and accountable, are not separate and distinct from what we have been
doing over the past year to improve Deepwater.
In fact, many of these initiatives can be traced directly to challenges we’ve faced, in part, in
our Deepwater program. Consequently, we will be better organized, better trained, and better
equipped to manage large, complex acquisitions like Deepwater in the coming days, weeks,
months and years as we complete these service-wide enhancements to our mission support
systems, specifically our acquisition, financial and logistics functions. That is the future of
the Coast Guard, and that is the future of Deepwater.
To be frank, I am tired of looking in the rearview mirror - conducting what has been the
equivalent of an archaeological dig into Deepwater. We already understand all too well what
has been ailing us within Deepwater in the past five years:
We’ve relied too much on contractors to do the work of government as a result of tightening
AC&I budgets, a dearth of contracting personnel in the federal government, and a loss of
focus on critical governmental roles and responsibilities in the management and oversight of
the program.
We struggle with balancing the benefits of innovation and technology offered through the
private sector against the government’s fundamental reliance on robust competition.
Both industry and government have failed to fully understand each other’s needs and
requirements, all too often resulting in both organizations operating at counter-odds to one
another that have benefited neither industry nor government.
And both industry and government have failed to accurately predict and control costs.
While we can—and are—certainly learning from the past, we ought to be about the business
of looking forward—with binoculars even—as we seek to see what is out over the horizon so
we can better prepare to anticipate challenges and develop solutions with full transparency
and accountability. That is the business of government. And it’s the same principle that
needs to govern business as well.
And it’s precisely what I intend to do: with the changes in management and oversight I
outlined for you here today, with the changes we are making in the terms and conditions of
the Deepwater contract, and with the changes we will make in our acquisition and logistics
support systems throughout the Coast Guard. If we do, I have no doubt in my mind that we
will exceed all expectations for Deepwater....
The Deepwater program of tomorrow will be fundamentally better than the Deepwater
program of today.
The Coast Guard has a long history of demonstrating exceptional stewardship and care of the
ships, aircraft and resources provided it by the public, routinely extending the life of our
assets far beyond original design specifications to meet the vital maritime safety, security
and stewardship needs of the nation....
Knowing that to be the case, I am personally committed to ensuring that our newest ships,
aircraft and systems acquired through the Coast Guard’s Integrated Deepwater System are
capable of meeting our mission requirements from the moment they enter service until they
are taken out of service many, many years into the future....
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As I’ve said many times in the past, the safety and security of all Americans depends on a
ready and capable Coast Guard, and the Coast Guard depends on our Deepwater program to
keep us ready long into the future.
The changes to Deepwater management and oversight I outlined here for you today reflect a
significant change in the course of Deepwater. I will vigorously implement these and other
changes that may be necessary to ensure that our Coast Guard men and women have the
most capable fleet of ships, aircraft and systems they need to do the job I ask them to do each
and every day on behalf of the American people.49
Other Actions Announced in 2007
The Coast Guard in 2007 also did the following:
• announced a reorganization of certain Coast Guard commands—including the
creation of a unified Coast Guard acquisition office—that is intended in part to
strengthen the Coast Guard’s ability to manage acquisition projects, including the
Deepwater program;
• stated that would alter the terms of the Deepwater contract for the 43-month
award term that commenced in June 2007 so as to address concerns raised about
the current Deepwater contract;
• announced that it intended to procure the 12 FRC-B cutters directly from the
manufacturer, rather than through ICGS;
• stated that it was hiring additional people with acquisition experience, so as to
strengthen its in-house capability for managing the Deepwater program and other
Coast Guard acquisition efforts;
• stated that it concurred with many of the recommendations made in the DHS IG
reports, and was moving to implement them;
• stated that it was weighing the recommendations of the DAU quick look study;
and
• stated that it had also implemented many recommendations regarding Deepwater
program management that have been made by GAO.




49 Coast Guard Press Release dated April 17, 2007, entitled “Statement by Adm. Thad Allen on the Converted 123-Foot
Patrol Boats and Changes to the Deepwater Acquisition Program.”
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Author Contact Information

Ronald O'Rourke

Specialist in Naval Affairs
rorourke@crs.loc.gov, 7-7610




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